Materiality

Question 1

What four matters should be documented with respect to materiality considerations?

Answer 1

1. )Materiality for the financial statements as a whole
2. )Materiality level(s) for applicable transactions, account balances, or disclosures
3. )Performance materiality
4. )Any revision of those considerations during the audit engagement

Question 2

The clarified auditing standards introduced the term “performance materiality”. What does that term mean?

Answer 2

The amount(s) set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole

Question 3

What is meant by the term “tolerable misstatement”?

Answer 3

The application of performance materiality to a particular sampling procedure or application

Question 4

Prior auditing standards referred to planning stage materiality. What did the term “planning stage materiality” mean?

Answer 4

The size of the misstatements that the audit program was designed to detect

Question 5

The terms “planning stage materiality” and “evaluation stage materiality” in prior auditing standards has been replaced by what single concept in the clarified auditing standards?

Answer 5

Performance materiality

Question 6

What is the basic meaning of the concept of materiality?

Answer 6

An understanding of what is important.

Question 7

Prior auditing standards referred to evaluation stage materiality. What did the term “evaluation stage materiality” mean?

Answer 7

The determination of whether the financial statements were fairly stated in all material respects at the completion of fieldwork