CHAPTER 9 Multiple-Choice Questions 1. easy a If it is probable that the judgment of a reasonable person would have been 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. 2. easy The preliminary judgment about materiality is the amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users. b a. minimum b. maximum c. mean average d. median average 3. easy 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: d a. regulators. b. the audit firm’s managing partner. c. no one in particular. d. the client’s management. 4. The FASB definition of materiality emphasizes what class of financial statement users? easy a. Regulators. c b. Informed investors. c. Reasonable persons. d. Potential investors. 5. easy When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as: d a. the materiality range. b. the error range. c. tolerable materiality. d. tolerable misstatement. 6. Why do auditors establish a preliminary judgment about materiality? easy a. To determine the appropriate level of audit experience required for the work. c 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. None of the above. 7. easy Auditors are _____ to decide on the combined amount of misstatements in the financial statements that they would consider material early in the audit. b a. permitted b. required c. not allowed d. strongly encouraged 9-1
8. If an auditor establishes a relatively high level for materiality, then the auditor will: easy a. accumulate more evidence than if a lower level had been set. b b. accumulate less evidence than if a lower level had been set. c. accumulate approximately the same evidence as would be the case were materiality lower. d. accumulate an undetermined amount of evidence. 9. easy The preliminary judgment about materiality and the amount of audit evidence accumulated are _____ related. d a. directly b. indirectly c. not d. inversely 10. After the preliminary judgment about materiality has been established, auditors may: easy a. not adjust it. d b. adjust it downward only. c. adjust it upward only. d. adjust it either downward or upward. 11. In an audit area that has a higher inherent risk, it would be prudent to: easy a. increase the amount of audit evidence gathered. d
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