Chapter 9

Question 1

When allocating performance materiality:

A. It is easy to predict in advance which accounts are not likely to be misstated.
B. Only over statements need to be considered.
C. Professional judgment is critical.
D. The sum of all the performance materiality levels cannot exceed the preliminary judgment about materiality.

Answer 1

C. Professional judgment is critical.

Question 2

Which of the following is a correct statement regarding performance materiality?

A. Determining performance materiality is necessary because auditors accumulate evidence by segments.
B. The level of performance materiality does not affect the amount of evidence needed.
C. Performance materiality cannot vary for different classes of transactions.
D. Performance materiality is required for public companies, but not for private companies

Answer 2

A. Determining the performance materiality is necessary because auditors accumulate evidence by segments.

Question 3

Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

A. Increase materiality levels
B. Decrease detection risk
C. Decrease substantive testing
D. Increase inherent risk

Answer 3

B. Decrease detection risk

Question 4

In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?

A. The internal audit department’s objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee.
B. The risk the internal control system will not detect a material misstatement of a financial statement assertion.
C. The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion.
D. The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls.

Answer 4

D. The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls.

Question 5

Why do auditors establish a preliminary judgment about materiality?

A. To determine the appropriate level of staff to assign to the audit.
B. So that the client can know what records to make available to the auditor.
C. To help plan the appropriate evidence to accumulate.
D. To finalize the control risk assessment.

Answer 5

C. To help plan the appropriate evidence to accumulate.