Materiality

Question 1

Materiality

Answer 1

The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.” (Note that this definition emphasizes that materiality judgments involve both quantitative and qualitative considerations.

Question 2

The auditor considers the concept of materiality throughout the audit process, including

Answer 2

(a) in planning and performing the audit; (b) in evaluating the effect of uncorrected misstatements on the entity’s financial statements; and (c) in forming the auditor’s opinion.

Question 3

Documentation—The auditor should document the following matters:

Answer 3

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

Question 4

PCAOB Standards

Answer 4

The relevant PCAOB guidance is provided by Consideration of Materiality in Planning and Performing an Audit. The auditor’s responsibilities regarding materiality under the PCAOB standards are very similar to those under AICPA standards, although the PCAOB standard does not use the term “performance materiality.”

Question 5

An auditor considers materiality for planning purposes in terms of the _____ aggregate level of misstatements that could be material to any one of the financial statements.

Answer 5

SMALLEST

Question 6

In order to issue an unmodified opinion, the auditor must be confident that no material misstatements exist in the financial statements. While misstatements may exist, in total they must be believed to be ____ a material amount.

Answer 6

Less Than