From the course: Audit and Due Diligence Foundations

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Judgment calls

Judgment calls

From the course: Audit and Due Diligence Foundations

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Judgment calls

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- Someone working on an audit might ask, "How do you know what matters in an audit?" And the answer's almost always the same. The lead CPA tells you it does. It's a joke. You know, kind of. In general, there are three judgment calls that the CPA makes, and these will impact how an audit's conducted as well as the opinion of the auditor. These include materiality, relevance, and reliability. What do each of these mean? Well, let's take a look. Materiality. This simply means that the numbers you're looking at are important. In a $20 million audit, the audit team isn't going to evaluate every $7 receipt from Taco Bell. It's not material. Essentially, it's too small to matter. And whether you're looking at transaction or balance sheet data, you want to make sure that the biggest stuff is in order. Some of the kinds of things that might stick out would be a massive equipment purchase, a sharp rise in travel…

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