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12) When setting a preliminary judgment about materiality,A) more evidence is required for a low dollar amount than for a high dollar amount.B) less evidence is required for a low dollar amount than for a high dollar amount.C) the same amount of evidence is required for either low or high dollar amounts.D) there is no relationship between materiality and the dollar amount of evidence needed.13) Lewis Corporation has a few large accounts receivable that total one million dollars, whereasClark Corporation has many small accounts receivable that total one million dollars. Misstatement in any one account is more significant for Lewis corporation because of the concept of14) When determining materiality,15) Audit standards require the auditor to consider the combined amount of misstatement early inthe audit. This is known as preliminary materiality judgment. List and discuss the three main factors that affect an auditor's preliminary judgment about materiality.Answer: The three main factors that affect an auditor's judgment about materiality are:•Materiality is a relative rather than an absolute concept. A misstatement of a given size might be material for a small company, whereas the same dollar misstatement could be immaterial for a larger one.•Benchmarks are needed for evaluating materiality. Because materiality is relative, it is necessary to have benchmarks for establishing whether misstatements are material. Net income before taxes is normally the most commonly used benchmark, but other possible benchmarks include current assets, total assets, current liabilities, and owners' equity.•Qualitative factors also affect materiality. Certain types of misstatements are likely to be more important to users than others, even if the dollar amounts are the same, such as misstatements involving frauds.
16) Due to qualitative factors, certain types of misstatements are likely to be more important to users than others, even if the dollar amounts are the same. Identify two qualitative factors that might significantly affect an auditor's materiality judgment, and give an example of each.