Assessing the Materiality of Financial Misstatements‪.‬

I. INTRODUCTION The regulation of financial reporting by public companies is principally shaped by two considerations: accuracy and cost. If financial reports are inaccurate, stock prices may not reflect the underlying economic value of companies. But because of the complexity of public companies, as well as the ambiguity of the generally accepted accounting principles (GAAP) with which financial statements must conform, it is expensive to ensure that the accounting for every transaction is appropriate.