Material – Costing & Auditing
In Costing Material is categorized as Direct Material - are those that can be easily traced to the final product and which directly contribute to the production. For example, in manufacturing, direct materials include raw materials like wood for furniture or metal for machinery, and
Indirect Material - are those that cannot be easily traced to the final product but are still necessary for production. They typically form part of overhead costs. Examples include lubricants, cleaning supplies used in production processes.
In Auditing, Auditors assess the significance of errors, misstatements, or discrepancies in financial statements and material weakness in internal control. If an error is considered material, it could potentially influence the decisions of users of those financial statements.
Auditors set a materiality threshold, above which errors must be corrected or disclosed and focus their efforts on detecting and addressing material misstatements during the audit process
Overall, the concept of "material" in costing and auditing terms revolves around significance: identifying, evaluating, and managing items or information that have a substantial impact on decision-making, financial reporting, and compliance.
By CA L.Muralidharan and CPA L.Mukundan
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