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Chapter 9 Materiality and RiskLearning Objective 9-11) If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2: A) material.B) insignificant.C) significant.D) relevant.Answer: ATerms: FASB Statement No. 2; Probable judgment of a reasonable personDiff: EasyObjective: LO 9-1AACSB: Reflective thinking skills2) The scope paragraph of the standard unqualified auditor's report states that "… the standards require that we plan and perform the audit to obtain ________ assurance about whether the financial statements are free of material misstatement". What type of assurance is given?A) immediateB) limitedC) reasonableD) absoluteAnswer: CTerms: Type of assurance providedDiff: EasyObjective: LO 9-1AACSB: Reflective thinking skills3) Auditors are responsible for determining whether financial statements are materially misstated, so upon discovering a material misstatement they must bring it to the attention of:DTerms: Discovery of a material misstatement must bring it to the attentionDiff: EasyObjective: LO 9-1AACSB: Reflective thinking skills
4) The FASB definition of materiality focuses on potential users of financial statements.BTerms: Materiality focuses on potential usersDiff: EasyObjective: LO 9-1AACSB: Reflective thinking skillsLearning Objective 9-21) Audit standards require the auditor to consider materiality early in the audit. Which statement(s) regarding preliminary materiality are true?I.Preliminary materiality may change during the engagement.II.Preliminary materiality is the maximum amount the auditor by which the auditor believes the financials could be misstated and still not affect the decisions of reasonable users.CTerms: Preliminary materiality assessmentDiff: EasyObjective: LO 9-2AACSB: Reflective thinking skills2) Why do auditors establish a preliminary judgment about materiality?A) To determine the appropriate level of staff to assign to the audit.B) So that the client can know what records to make available to the auditor.C) To plan the appropriate audit evidence to accumulate and develop an overall audit strategy.D) To finalize the control risk assessment.Answer: CTerms: Purpose to establish preliminary judgment about materialityDiff: EasyObjective: LO 9-2AACSB: Reflective thinking skills