M6-Materiality

Question 1

The auditor’s preliminary judgment about materiality is generally based on either annualized interim financial statements or annual financial statements from a prior period. (true or false)

Answer 1

true

The financial statements would be a good starting point in estimating the current year’s expected results, especially for a continuing client.

Question 2

The financial statements are interrelated, materiality levels are generally considered in terms of the smallest level of misstatement that could be material to any one of the financial statements. (true or false)

Answer 2

true

Question 3

According to the US Supreme Court, information is material if there is a substantial likelihood that the information would be viewed by a reasonable investor as having significantly altered the total mix of available information. (true or false)

Answer 3

true

Question 4

The client’s request for an extension to submit documentation generally would not have an impact on established materiality levels or tolerable misstatements. (true or false)

Answer 4

true

Question 5

Generally, if there is a high likelihood of misstatements then the auditor sets materiality at a lower amount, which results in the auditor looking closer at audit evidence. (true or false)

Answer 5

true