ACCT 5200 Exam 2 Matthews || Questions and 100% Accurate Answers.
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Module
ACCT 5200
Institution
ACCT 5200
Materiality (definition) correct answers 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 that information would have been changed or influenced by the omissi...
ACCT 5200 Exam 2 Matthews || Questions and 100%
Accurate Answers.
Materiality (definition) correct answers 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 that information would have been changed or
influenced by the omission or misstatement
Preliminary judgment about materiality (definition) correct answers the maximum amount by
which the auditor believes that the statements could be misstated and still not affect the decisions
of the reasonable user; used in audit planning
Revised judgment about materiality (definition) correct answers a change in the auditor's
preliminary judgment made when the auditor determines that the preliminary judgement was too
large or too small
Allocation of the preliminary judgment about materiality (definition) correct answers the process
of assigning to each balance sheet account the misstatement amount considered to be material for
that account based on the auditor's preliminary judgement.
Tolerable misstatement (definition) correct answers the application of performance materiality to
a sampling procedure(AICPA standard) or the materiality allocated to any given account balance
(PCAOB standards)
Known misstatements (definition) correct answers specific misstatements in a class of
transactions or account balance identified during an audit
Likely misstatements (definition) correct answers misstatements that arise either from
differences between management's and auditor's judgment about estimates of account balances or
from projections of misstatements based on the auditor's test of a sample from a population
Sampling Risk (definition) correct answers results because the auditor has sampled only a
portion of the population
Performance materiality (definition) correct answers the materiality amount(s) for segments of
the audit, set by the auditor for less than the materiality for the financial statements as a whole
Define the meaning of the term materiality as it is used in accounting and auditing. correct
answers
What is the relationship between materiality and the phrase obtain reasonable assurance used in
the auditor's report? correct answers
What is meant by using benchmarks for setting a preliminary judgement about materiality?
correct answers
, How will those benchmarks differ for an audit of a manufacturing company and a government
unit such as a school district? correct answers
Explain why materiality is important but difficult to apply in practice. correct answers
Assume that Uriah Heep, CPA, is using 5% of net income before taxes, current assets, or current
liabilities as his major guidelines for evaluation materiality. What qualitative factors should he
also consider in deciding whether a misstatement might be material. correct answers
How will the conduct of an audit of a medium-sized company be affected by the company's
being a small part of a large conglomerate as compared to being a separate entity. correct
answers
Provide two examples of when an auditor might set a lower level of performance materiality for
a particular class of transactions, account balance, or disclosure. correct answers
Assume materiality for the financial statements as a whole is 100,000 and performance
materiality for accounts receivable is set at 40,000. If the auditor finds one receivable that is
overstated by 55,000, what should the auditor do? correct answers
Acceptable audit risk (definition) correct answers a measure of how willing the auditor is to
accept that the financial statements may be materially misstated after the audit is completed and
an unmodified audit opinion has been issued (see audit assurance)
Audit assurance (definition) correct answers a complement to acceptable audit risk; an
acceptable audit risk of 2% is the same as an audit assurance of 98%; also called overall
assurance and level of assurance
Audit risk model (definition) correct answers a formal model reflecting the relationship between
acceptable audit risk, inherent risk, control risk, and planned detection risk
Formula: PDR=AAR/(IRxCR)
Control risk (definition) correct answers a measure of the auditor's assessment of the risk that a
material misstatement could occur in an assertion and not be prevented or detected on a timely
basis by the client's internal controls
Engagement risk (definition) correct answers the risk that the auditor or audit firm will suffer
harm because of a client relationship, even though the audit report rendered for the client was
correct
Inherent risk (definition) correct answers a measure of the auditor's assessment of the
susceptibility of an assertion to material misstatement before considering the effectiveness of
internal control
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