Exam 8: Materiality Decisions and Performing Analytical Procedures

Material misstatement is not possible for individual accounts with balances below the auditor's preliminary judgment about materiality.

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(True/False)

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Question 1

Correct Answer:

Verified

False

Identify the two levels of materiality that are important in audit planning and indicate the reason for each level.

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(Essay)

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Question 2

Correct Answer:

Verified

Level 1 ─
Financial statement level because the auditor expresses an opinion on the
financial statements taken as a whole.
Level 2 ─
Account balance level because the auditor verifies individual account balances in reaching an overall conclusion on the fairness of the financial statements.

In practice, the allocation of materiality is normally done without heavy reliance on the subjective judgment of the auditor.

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(True/False)

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Question 3

Correct Answer:

Verified

False

The auditor's preliminary judgment about materiality cannot be made before the financial statement date, when annual amounts become known.

(True/False)

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Question 4

All else being equal, as the level of materiality decreases, the amount of evidence required will:

(Multiple Choice)

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Question 5

Materiality judgments involve both quantitative and qualitative considerations.

(True/False)

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Question 6

Return on Equity = Assets Turnover x Profit Margin.

(True/False)

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Question 7

In general, as an account balance decreases, the amount of evidence required will:

(Multiple Choice)

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Question 8

The auditor must be prepared to rigidly maintain his or her preliminary decisions about materiality as the audit progresses.

(True/False)

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Question 9

The six steps involved in performing analytical procedures does not include:

(Multiple Choice)

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Question 10

The primary reason for performing analytic procedures in audit planning is to identify accounts that may contain misstatements and to design an audit that will respond to the risk of material misstatement.

(True/False)

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Question 11

Quantitative guidelines for setting materiality levels are currently provided by:

(Multiple Choice)

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Question 12

The allocation of the preliminary estimate of materiality may not be revised once the fieldwork is begun.

(True/False)

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Question 13

Materiality should be allocated to the various accounts in proportion to their recorded balances.

(True/False)

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Question 14

In a normal audit, the relationship between the level of materiality used to plan the engagement and the level of materiality used to evaluate evidence is:

(Multiple Choice)

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Question 15

Professional standards recognize that a misstatement that is quantitatively immaterial may be qualitatively material. In regard to these items, professional standards require the auditor to:

(Multiple Choice)

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Question 16

Analytical procedures often provide the auditor with clues about whether an account is more likely to be overstated or understated.

(True/False)

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Question 17

Which of the following is not a weakness of analytical procedures?

(Multiple Choice)

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Question 18

In making judgments about materiality at the account balance level, the auditor must consider the relationship between it and financial statement materiality. This should lead the auditor to plan the audit to detect misstatements that:

(Multiple Choice)

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Question 19

In making a preliminary judgments about materiality, the auditor initially determines the aggregate (overall) level of materiality for each statement. For planning purposes, the auditor should use the:

(Multiple Choice)

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Question 20

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Exam 8: Materiality Decisions and Performing Analytical Procedures

Material misstatement is not possible for individual accounts with balances below the auditor's preliminary judgment about materiality.

Identify the two levels of materiality that are important in audit planning and indicate the reason for each level.

In practice, the allocation of materiality is normally done without heavy reliance on the subjective judgment of the auditor.

The auditor's preliminary judgment about materiality cannot be made before the financial statement date, when annual amounts become known.

All else being equal, as the level of materiality decreases, the amount of evidence required will:

Materiality judgments involve both quantitative and qualitative considerations.

Return on Equity = Assets Turnover x Profit Margin.

In general, as an account balance decreases, the amount of evidence required will:

The auditor must be prepared to rigidly maintain his or her preliminary decisions about materiality as the audit progresses.

The six steps involved in performing analytical procedures does not include:

The primary reason for performing analytic procedures in audit planning is to identify accounts that may contain misstatements and to design an audit that will respond to the risk of material misstatement.

Quantitative guidelines for setting materiality levels are currently provided by:

The allocation of the preliminary estimate of materiality may not be revised once the fieldwork is begun.

Materiality should be allocated to the various accounts in proportion to their recorded balances.

In a normal audit, the relationship between the level of materiality used to plan the engagement and the level of materiality used to evaluate evidence is:

Professional standards recognize that a misstatement that is quantitatively immaterial may be qualitatively material. In regard to these items, professional standards require the auditor to:

Analytical procedures often provide the auditor with clues about whether an account is more likely to be overstated or understated.

Which of the following is not a weakness of analytical procedures?

In making judgments about materiality at the account balance level, the auditor must consider the relationship between it and financial statement materiality. This should lead the auditor to plan the audit to detect misstatements that:

In making a preliminary judgments about materiality, the auditor initially determines the aggregate (overall) level of materiality for each statement. For planning purposes, the auditor should use the:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Revenue Cycle

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

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