If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2:
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. a. minimum
c. mean average
d. median average
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: a. regulators.
b. the audit firm’s managing partner.
c. no one in particular.
d. the client’s management.
The FASB definition of materiality emphasizes what class of financial statement users? a. Regulators.
b. Informed investors.
c. Reasonable persons.
d. Potential investors.
When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as: a. the materiality range.
b. the error range.
c. tolerable materiality.
d. tolerable misstatement.
Why do auditors establish a preliminary judgment about materiality? a. To determine the appropriate level of audit experience required for the work. b. So that the client can know what records to make available to the auditor. c. To plan the appropriate audit evidence to accumulate and develop an overall audit strategy.
d. To finalize the assessment of control risk.
Auditors are _____ to decide on the combined amount of misstatements in the financial statements that they would consider material early in the audit. a. permitted
c. not allowed
d. strongly encouraged
If an auditor establishes a relatively high level for materiality, then the auditor will:
The preliminary judgment about materiality and the amount of audit evidence accumulated are _____ related.
After the preliminary judgment about materiality has been established, auditors may: a. not adjust it.
b. adjust it downward only.
c. adjust it upward only.
d. adjust it either downward or upward.
In an audit area that has a lower inherent risk, it would be prudent to: a. increase the amount of audit evidence gathered.
b. assign more experienced staff to that area.
c. increase the tolerable misstatement for the area.
d. expand planning procedures.
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? a. Net income before taxes.
b. Current assets.
c. Owners’ equity.
Auditing standards _____ that the basis used to determine the preliminary judgment about materiality be documented in the audit files.
b. do not allow
d. strongly encourage
Amounts involving fraud are usually considered _____ important than unintentional errors of equal dollar amounts.
b. no less
c. no more
Which of the following qualitative factors may significantly influence whether an item is deemed to be material?
accumulate more evidence than if a lower level had been set. accumulate less evidence than if a lower level had been set. accumulate approximately the same evidence as would be the case were materiality lower. accumulate an undetermined amount of evidence.
Misstatements that are otherwise
minor may be material if there are
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