Materiality

Question 1

Materiality

Answer 1

Quantitative and Qualitative Measurements

Question 2

MATERIALITY

Answer 2

• Measured on the Transactional or the Financial Statement level
• Audit plan based on smallest misstatement that could be material to Financial Statements
• If materiality thresholds differ among Financial Statements, then use the lowest threshold amount. DON’T average them.

Question 3

MATERIALITY

Answer 3

• Based on Auditor Judgment
• Auditor must consider needs of users
• Audit should be planned to allow “reasonable
  assurance” that no material misstatements exist

Question 4

MATERIALITY

Answer 4

• As acceptable Materiality level Decreases
• Auditor must find smaller misstatements
• More individual account testing & testing closer to Balance Sheet Date

Question 5

Litigation and Claims

Answer 5

If Auditor suspects legal proceedings could contribute to a Material Misstatement, then they must contact the entity’s external Legal Counsel