M7

Question 1

What 3 factors must be considered when setting materiality?

Answer 1

The materiality level needs to be expressed as a specific amount

The auditor should use the smallest level of misstatement that could be material to any one of the F/S

Both qualitative and quantitative factors must be considered

Question 2

What is materiality as a whole used for? How is it calculated?

Answer 2

It is used to determine the audit opinion. As a percentage of a benchmark.

Question 3

What is performance materiality / tolerable misstatement used for?

Answer 3

Determines the assessment of risk of material misstatement
Determines the nature, extent, and timing of tests

*Must be less than materiality

Question 4

What is the supreme court definition of materiality?

Answer 4

Information that is likely to be viewed by a reasonable investor as altering the mix of available information.

Question 5

What is a good starting point for determining materiality?

Answer 5

Prior year financial statements.

Question 6

Would an auditor use a higher or lower range if the likelihood of uncorrected misstatements is higher?

Answer 6

They would use the lower range if likelihood of misstatements is high.

Question 7

Which materiality levels must an auditor set

Answer 7

Materiality as a whole as well as performance materiality

Question 8

Round down 29,400 to 2 digits

Answer 8

29,000