chap 8 determine performance materiality Flashcards
the purpose of allocating the preliminary judgement about materiality to B/S accounts is?
help the auditor decide the appropriate evidence to accumulate for each account on both the B/S and I/S
PCAOB standards refer to performance materiality as
tolerable misstatement
most audit procedures focus on B/S or I/S accounts
B/S
why is determining perforamcne materiality necessary?
- because auditors accumululte evidence by segments not for FSs as a whole 2. the level of performance materiality helps them decide the appropriate audit evidence to accumulate
performance materiality, which can also be referred to as
the allocation of the preliminary judgment about materiality to segments.
Performance materiality for an account is often set at what percentage of overall materiality?
50-75%
if auditors do not use a standard percentage and consider audit assurance and the cost of audit evidence in determining performance materiality, most allocate materiality to B/S or I/S accounts?
B/S
the aim of allocation is to?
minimize audit cost without sacrificing audit quality
Auditors have three major difficulties when allocating materiality to balance sheet accounts:
- Auditors expect certain accounts to have more misstatements than others. 2. Both overstatements and understatements must be considered. 3. Relative audit costs affect the allocation
at the end of the audit the auditor must combine all ____ and _____ missatements and compare them to the preliminary judgment about materiality
estimated actual
performance materiality is defined as ?
the amount set by the auditor at less than materiality for the FSs as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected missatements exceeds materiality for the FSs as a wholed
what is tolerable missatement?
the amount the auditor is willing to accept in mistatements and still consider the account fairly stated
