Auditing chapter 7 Pre-Quiz

Materiality is the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.

Materiality is the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it possible that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.

A fact is material if there is a substantial likelihood that a reasonable investor would have viewed the fact as having significantly altered the total mix of information made available.

All of these statements are true

Performance materiality is set less than overall materiality and helps the auditor determine the extent of audit evidence to obtain.

If performance materiality is set too high, the auditor might perform more substantive procedures than necessary.

Performance materiality is essentially the same as overall materiality.

If performance materiality is set too low, the auditor might not perform sufficient procedures to detect material misstatements in the financial statements.

The precision of the auditor's expectation tends to be less precise, and based on more aggregated data, for planning analytical procedures than for substantive analytical procedures.

For planning analytical procedures, significant unexpected differences suggest that the auditor will need to increase substantive procedures.

A frequently used planning analytical procedure is regression analysis.

The objective for planning analytical procedures is to identify accounts with heightened risk of misstatement to provide a basis for designing and implementing responses to the assessed risks.

The auditor is willing to take only a 1% chance that audit procedures will not detect a material misstatement.

The auditor is willing to take only a 1% chance of expressing an audit opinion that the financial statements are fairly presented when they are materially misstated.

The auditor is 99% confident that the audit procedures will detect a material misstatement.

The auditor is 99% confident that the audit opinion is correct.

The timing of risk response refers to when the auditor performs the audit procedures.

When the risk of material misstatement is low, the auditor conducts the audit procedures closer to year-end, on an unannounced basis, and includes more elements of unpredictability in the procedures.

The extent of risk response refers to the sufficiency of evidence that is necessary given the client's assessed risks, materiality, and the acceptable level of audit risk.

The nature of risk response refers to the types of audit procedures applied given the nature of the account balance and the most relevant assertions regarding that account balance.