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Audit Procedures Planning Materiality Assessment Quiz

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Audit Procedures Planning Materiality Assessment Quiz

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Questions and Answers

What does an auditor consider when making a preliminary estimate of materiality for audit purposes?

Unknown misstatements only

Quantitative factors only

Known misstatements, likely misstatements, and potential undetected misstatements (correct)

Materiality for income statement only

Why does an auditor normally estimate a single amount for materiality?

To decrease the audit risk

Misstatements usually affect both balance sheet and income statement (correct)

To prioritize income statement over balance sheet

To simplify the audit process

What does an auditor need to consider in addition to quantitative assessment when assessing materiality?

Qualitative factors (correct)

Only known misstatements

Historical data only

Pervasive misstatements

What is the relationship between audit risk and materiality?

Inverse relationship (D) Signup and view all the answers

Why does an auditor set a lower materiality threshold for accounts with higher audit risk?

To collect more evidence for these accounts (C) Signup and view all the answers

What is the purpose of understanding the audit entity in audit planning according to ISA 315?

To identify and assess risk of material misstatements (D) Signup and view all the answers

Which of the following is NOT a way to gain understanding of the audit entity and its environment as per ISA 315?

Observation and inspection of cash flow (B) Signup and view all the answers

Which of the following is NOT a characteristic of significant risks according to audit planning standards?

Involves simple transactions (A) Signup and view all the answers

What is a part of the auditor's response to assessed risk as per ISA 330?

Incorporating unpredictability into audit procedures (B) Signup and view all the answers

How does an auditor use materiality according to ISA 320?

To evaluate the presentation of financial data (C) Signup and view all the answers