AUDIT PLANNING, MATERIALITY & RISK

The preliminary judgment about materiality is the amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users.

• minimum

• maximum

Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement they must bring it to the attention of

• the audit firm’s managing partner

• regulators.

• the client’s management.

When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as:

• tolerable materiality.

• tolerable misstatement.

• the materiality range.

• the error range.

If an auditor establishes a relatively high level for materiality, then the auditor will:

• accumulate more evidence than if a lower level had been set.

• accumulate less evidence than if a lower level had been set.

• accumulate an undetermined amount of evidence.

Which of the following is least likely to be appropriate as the basis for determining the preliminary judgment about materiality in the audit of financial statements?

• Net income before taxes

• Current assets.

• Owners’ equity.

• Inventory.

If planned detection risk is reduced, the amount of evidence the auditor accumulates will:

• decrease.

• increase.

• remain unchanged.

When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally

• reduce inherent risk and control risk.

• increase inherent risk and control risk.

• reduce acceptable audit risk and increase inherent risk

• increase acceptable audit risk and reduce inherent risk

The risk of material misstatement refers to:

• control risk and acceptable audit risk.

• inherent risk.

• the combination of inherent risk and control risk.

• none of the above.

The auditor’s preliminary judgment about materiality is the maximum amount by which the auditor believes the financial statements could be misstated and still not affect the decisions of reasonable users.

• TRUE

• FALSE

Achieved detection risk can be reduced ONLY by accumulating more audit evidence.

• TRUE

• FALSE