Auditing: A Risk Based-Approach to Conducting a Quality Audit
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 7, Problem 16MCQ
To determine

Introduction:

Overall materiality is a boarder concept which involves the limit beyond which the financial statements will considered to be materially misstated.

Let us assume the overall materiality of a business is set at $ 100,000.Any error beyond $100000 will be considered material and affect the audit report.

Performance materiality is set at a level lower than the overall materiality .Its purview includes individual accounts and not overall business. However, in certain situations, the individual items when added together can exceed the overall materiality.

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Which of the following statements about materiality is considered true? a. Materiality is judged by the auditor using his professional knowledge and experience since materiality of an item varies with circumstances. b. Materiality could never influence the economic decisions of users taken on the basis of the financial information. c. The auditor should consider materiality but not its relationship with audit risk when conducting an audit. d. The size and nature of the item will not determine its materiality.
Which of the following is not true a. Inherent risk and control risk are assessed by the auditor and function independently of the financial statement audit b. Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required c. Inherent risk is directly related to evidence whereas detection risk is inversely related to the amount of audit evidence required d. Inherent risk is the susceptibility of the financial statements to material error, assuming no internal controls
Which of the following statements is incorrect regarding the reliability of audit evidence? a. While internal audit evidence is considered to be acceptable, the auditor usually prefers audit evidence form external sources. b. Oral representation by the client management is not a valid evidence. c. The effectiveness of accounting and internal control adds to the reliability of internal evidence. d. Audit evidence obtained directly by the auditor is more reliable than that one provided by the client.
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