AUD 2.6 - Materiality

Question 1

When assessing materiality, the auditor should use the smallest or largest level of misstatement that could be material to any one of the financial statements?

Answer 1

Smallest

Question 2

What factors are used o make the preliminary assessment of materiality?

Answer 2

Percentages
Appropriate benchmarks (revenue, gross profit, earnings, etc.)
Whether there are financial statements items users focus their attention towards
Size of the entity
Prior period financials

Question 3

For accounts or disclosures where there are substantial likelihood that misstatements of amounts would be less than the materiality level established, PCAOB standards state that:

Answer 3

Separate lower materiality levels should be set for those particular accounts or disclosures

Question 4

The amount set by the auditor at less than materiality for the financials as a whole to reduce to an appropriately low level the probability that the aggregate of incorrect and undetected misstatements exceeds materiality for the financials as a whole:

Answer 4

Performance materiality

Question 5

The maximum error in a population that the auditor is willing to accept:

Answer 5

Tolerable misstatement