Video: Materiality Objectives

This lesson covers the concept of materiality in relation to financial statements, ensuring that all related aspects are thoroughly understood. It demonstrates how to calculate materiality levels for different classes of transactions, account balances, and disclosures for both issuers and non-issuers. Additionally, the lesson delves into the use of performance materiality and tolerable misstatement in an audit, as taught by Nick Palazzolo, CPA. Finally, it explains how to calculate performance materiality or tolerable misstatement for assessing the risk of material misstatement and determining the nature, timing, and extent of further audit procedures.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Starting off, we want to understand materiality as it relates to the financial statements as a whole. We're going to get this concept down. I'm going to make sure that you have everything understood and there's not a single stone unturned. We're also going to calculate the materiality level or levels to be applied to classes of transactions, account balances, and disclosures in an audit of an issuer or a non-issuer. We're going to see that there are possibly different materiality levels depending on what you're auditing. Are you auditing revenue? You might have different materiality for revenue, assets, liabilities, expenses, equity, anything like that. We're also going to understand the use of performance materiality and tolerable misstatement in an audit. Those are terms that we'll dive into much further and see what they mean. And lastly, we want to calculate performance materiality or tolerable misstatement for the purposes of assessing the risk of material misstatement and determining the nature, timing, and extent of further audit procedures. Now the concept of nature, timing, and extent, that's going to be something we see time and time again throughout different lessons. So make sure you're taking a note to watch for those as we continue various lessons. Let's dive in and see all of our wonderful material.

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