Accounting Importance To Determine The Re-understanding

The purpose of this dissertation is, by pinpointing the manipulation of materiality principle by executive managements for affecting the faithful presentation of financial statements and the abuse of materiality judgment by accountants and auditors, to propose an exploratory research effort for better understanding the concept of materiality and the decision-making process of materiality judgment and as well as to suggest some recommendations for actions. This research is lying on the inherent essence and characteristics of materiality concepts and the decision-making process of materiality judgments.Financial statement users call upon certified public accountants to provide an independent check on whether a company's financial statements are free from of material misstatement. This independent check, or audit, does not guarantee that the financial statements will be free from all misstatements or omissions. Certified public accountants must, therefore, address in his/her audit reports the followings "In ouropinion, the financial statements.....present fairly in all material respects... (and) inconformity with general accepted accounting principles" . This expression reveals that the preparers and auditors of the financial statements are obliged for a certain reasonable assurance. The so-called reasonable assurance is simply expressing that the correctness and completeness of the financial statements are limited to material facts only. At this point, the judgment of materiality does significantly affect the presentation of financial statements. So, as early as in 1975 when FASB was founded, FASB clearly interpreted that " if the presentations of financial information are to be prepared economically on a timely basis and presented in a concise intelligible form, the concept of materiality is crucial." Therefore, how to determine a proper trade-off line of materiality threshold to satisfy both the providers and users of accounting information is a critical subject in this research, because any failure will trigger the "expectation gap" , which may lead to a legal liability on providers of accounting information.This research documents the following ascertainments:The essence of materiality concept is a personal and subjective perception. And the materiality concept in accounting is defined, by accounting authorities, in term of financial statements users' personal and subjective perception. Therefore, from the viewpoint of accountants and auditors, who apply the concept of materiality, the concept of materiality is extended and categorized into subjective mode versus objective mode, as well as the basic concept versus extensive concepts. Although both preparing and auditing financial statements need to apply the concepts of materiality,the purposes of implementing the principle of materiality in financial accounting system differs from the purposes of applying the concepts of materiality in auditing procedures. Because, the former distinguishes immaterial items in accounting data for reducing the producing cost of information as well as enhancing the understandability of financial statements, but the latter put much more attention on scrutinizing information for significant items in order to control audit risks and conduct an efficient and effective audit engagement. Meanwhile, the role of materiality principle implemented in financial accounting system plays both positive and negative function. Talking about the judgment of materiality, both quantitative factors and qualitative factors should be taken into consideration when made the judgment, especially the very qualitative factors that have long been neglected in practice. Also, the judgment should be made with the viewpoint of taking all statements as a whole and through a full analysis with all relevant considerations. Moreover, this dissertation also proposes an explorative approach to illustrate the interaction between qualitative factors and qualitative factors, and a explanation why the expectation gap arising from the difference of m...