Pre-engagement
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Apple Case Study
| AUDIT PLANNING 2
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: significant. b. insignificant. c. material. d. relevant. Which of the following statements is not correct about materiality? The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be materiality any one of the financial statements. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements. In developing the preliminary level of materiality in an audit, the auditor will Look to audit standards for specific materiality guidelines Increase the level of materiality if fraud is suspected Rely primarily on professional judgment to determine the materiality level Use the same materiality level as that used for different clients in the same industry In setting materiality guidelines, the ASC and the PICPA provide the following guidelines to practitioners: Both agree that materiality should be set at an amount not greater than 10% of Net income ASC’s guideline is greater than 10% but the PICPA’s is greater than 5%. Both agree that it should be greater than 5%. No specific materiality guidelines are provided by either of them. The auditors must consider materiality in planning an audit engagement. Materiality for planning purposes is The auditor’s preliminary estimate of the largest amount of error that would be material to any one of the client’s financial statements. The auditor’s preliminary estimate of the smallest amount of error that would be material to any one of the client’s financial statements. The auditor’s preliminary estimate of the amount of error that would be material to the balance sheet. The auditor’s preliminary estimate of the amount of error that would be material to the income statement. In considering materiality for planning purposes, an auditor believes that misstatements aggregating P100,000 would have a material effect on an entity’s income statement, but that misstatements would have to aggregate P200,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate
“Tolerable misstatement” is the term used to indicate materiality at the:
All else being equal, as the level of materiality decreases, the amount of evidence required will:
Which of the following would an auditor most likely use in determining the auditor’s preliminary judgment about materiality? The anticipated sample size of the planned substantive tests. The entity’s annualized interim financial statements. The results of the internal control questionnaire. The contents of the management representation letter. Which of the following would an auditor most likely use in determining the auditor’s preliminary judgment about materiality? The results of the initial assessment of control risk. The anticipated sample size for planned substantive tests. The entity’s financial statements of the prior year. The assertions that are embodied in the financial statements. When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as:
In allocating materiality, most practitioners choose to allocate to the balance sheet accounts because there are fewer. the income statement accounts because they are more important. both because there could be errors on either one. All of the financial statements because there could be errors on other statements besides the income statement and balance sheet. Why should the auditor plan more work on individual accounts as lower acceptable levels of both audit risk and materiality are established? To find smaller errors To find larger errors To increase the tolerable error in the accounts To decrease the risk of overreliance Download 114.48 Kb. Share with your friends:
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