Question 1
When allocating performance materiality,
◦ it is easy to predict in advance which accounts are most likely to be misstated.
◦ only overstatements need to be considered.
◦ professional judgment is critical.
◦ the sum of all the performance materiality levels cannot exceed the preliminary judgment about materiality.
Question 2
Which of the following are major difficulties auditors face when allocating materiality to balance sheet accounts?
◦
Certain accounts contain
more misstatements
than others. | Only overstatements
need be considered. | Audit costs can
affect allocation. |
| Yes | No | Yes |
◦
Certain accounts contain
more misstatements
than others. | Only overstatements
need be considered. | Audit costs can
affect allocation. |
| Yes | Yes | No |
◦
Certain accounts contain
more misstatements
than others. | Only overstatements
need be considered. | Audit costs can
affect allocation. |
| Yes | Yes | Yes |
◦
Certain accounts contain
more misstatements
than others. | Only overstatements
need be considered. | Audit costs can
affect allocation. |
| No | Yes | No |
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