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Author: catlovr One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3916  
Subject: Re: Financial Statements Date: 7/17/2000 8:27 PM
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Great Board that I have enjoyed lurking on. What thing I would like to add in terms of "ethical issues" and "cooking the books".

An auditor must disclose "material diferences". In general terms, anything is considered material if it differs from 2-4% of what is reported. Again this is a professional opinion of the auditing firm. Another way to understand what a "material difference " means is that if cash is off by $100.00 most people would not consider that "material" because it would not impact on any decision to invest in the company. In other ways the cash difference ispeanuts, unless the error is attributable to fraud. If you were going to purchase stock or invest in said company this would not be material to either you or the auditors.

However, if cash was off 100 million, then most likely this would impact any decision you would make about the company and would be considered "material". Needless to say, the auditors had better pick this up.
Also any time an auditor suspects fraud, it is considered "material" unless the book keeper is stealing a dollar out of petty cash.
In general, auditors do have lattitude when it comes to an actual audit.
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