chap 8 materiality and materiality for FS as a whole

Question 1

T/F Materiality is not a major consideration in determining the appropriate audit report to issue

Answer 1

F

Question 2

what is often the primary benchmark for deciding what is material for a profit oriented business because it is regarded as a critical item of info for users?

Answer 2

net income before taxes

Question 3

what are the 3 most important factors that affect the auditors preliminary judgement about materiality for a given set of FSs?

Answer 3

1. Materiality is a relative rather than an absolute concept. 2. Benchmarks are needed for evaluating materiality. 3. Qualitative factors also affect materiality- certain types of misstatements are likely to be more important to users than others, even if the dollar amounts are the same

Question 4

after establishing a primary benchmark for materiality, auditors should decide whether misstatements could materially affect what?

Answer 4

the reasonableness of other benchmarks

Question 5

auditors set a preliminary judgment about materiality to help plan what?

Answer 5

the appropriate evidence to accumulate- the lower the dollar amount of the preliminary judgment, the more evidence required

Question 6

if the client refused to correct the statements for a material mistatement, what will the auditor issue?

Answer 6

a qualifed or adverse opinion depending on the materiality of the miststament

Question 7

when auditors discover a material misstatment, they must do what?

Answer 7

bring it to the clients attention so that a correction can be made

Question 8

what are 3 examples of qualitiative factors that affect materiality?

Answer 8

1. amounts involving fraud considered more important than unintensional errors of equal dollar amounts 2. misstatements that would be minor may be material if there are possible consequences arising from contractual obligations 3. missatement that are otherwise immaterial may be material if they affect a trend in earnings, or a mistatement that would cause a loss to be reported as a profit

Question 9

materiality for segments of the audit (classes of transactions, account blances, or disclosure) is called?

Answer 9

performance materiality

Question 10

what 3 steps in applying materiality is part of evaluating results?

Answer 10

estimate total misstatement in segment, estimate the combined miststatement, and compare combined estimate with preliminary or revised judgment about materiality

Question 11

what are the 5 steos in applying materiality?

Answer 11

1. set materiality for the FSs as a whole 2. determine performance materiality 3. estimate total misstatement in segment 4. estimate the combined mistatement 5. compare combined estimate with preliminary or revised judgment about materiality

Question 12

The fourth step in audit planning is

Answer 12

to make a preliminary judgment about materiality for the audit.

Question 13

what 2 steps in applying materiality is part of planning the extent of tests?

Answer 13

set materiality for the FSs as a whole and determine performance materiality

Question 14

what is performance materiality?

Answer 14

materiality for segments of the audit (classes of transactions, account blances, or disclosure)

Question 15

the magnitude of misstatements that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decision of users is called?

Answer 15

materiality

Question 16

T/F accounting and auditing standards do not provide specific materiality guidelines to practitioners

Answer 16

T

Question 17

Auditing standards define materiality as

Answer 17

the magnitude of misstatements that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decision of users.

Question 18

since materiality depends on the decisions of users who rely oon the statement to make decisons, auditors must have knowedge of what?

Answer 18

the likely users of the clients statements and the decisions that are being made

Question 19

what is preliminary judgement about materiality?

Answer 19

the auditors have to decide on the combined amount of misstatements in the FSs that they would consider material early in the audit as they are developing the overall strategy for the audit

Question 20

the auditors have to decide on the combined amount of misstatements in the FSs that they would consider material early in the audit as they are developing the overall strategy for the audit. this is referred to as ?

Answer 20

preliminary judgement about materiality

Question 21

preliminary judgment about materiality is often dermined when? it is often based on what?

Answer 21

before year end prior years FSs or annualized interim FS info

Question 22

what is the preliminary judgment about materiality for the FSs as a whole ?

Answer 22

the maximum amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users

Question 23

what is a revised judgment about materiality?

Answer 23

during the audit, auditors may change the preliminary judgment about materiality