An internal auditor discovered an error in receivable from a major stockholder, the receivable balance account less than 1% from total receivable.

IA should advise management of the error, which should be corrected. But IA's main job is to seek for the root cause of the error - how did it arise - and recommend actions that will help to ensure that similar errors are not made in future. It is up to External Audit to determine whether the error is material to the presentation of the Financial Statements.

The error was reported in the receivables of the major stockholder, note a value attributed to major stockholder would not be in hundreds or thousands but might reach up to million and considering even1% out of total receivable would be considered a material value.

However it also depends on the tolerance level of the management to accept any error occurred in the accounts, but if discovered with evidence it should be rectified with immediate effects to show true and fair financial view without any exceptions.

yes, because there is a red flag here.