Which of the following is an approach used to determine posting materiality?

Which of the following is an approach used to determine posting materiality?

a. Dual approach.
b. Percentage approach.
c. Qualitative approach.
d. Planning approach.








Answer: B

Which of the following is not a factor adding to the complexity of materiality judgments made by auditors?

Which of the following is not a factor adding to the complexity of materiality judgments made by auditors?

a. Regulators pay particular attention to the judgmental aspects of auditor materiality decisions.
b. SEC regulators do not believe it is appropriate to use percentage terms to substitute for a full analysis of all relevant considerations regarding the magnitude of misstatement.
c. Regulators focus on how materiality decisions can affect client financial results.
d. SEC regulators have few requirements for auditors to comply with since the AICPA fills that role.







Answer: D

Which of the following statements is false regarding materiality judgments?

Which of the following statements is false regarding materiality judgments?

a. Materiality judgments are a matter of professional judgment.
b. Materiality judgments depend on the needs of a reasonable person (an investor, potential investor, or other stakeholder) relying on the information.
c. Materiality judgments involve both quantitative and qualitative considerations.
d. Materiality judgments are easy for auditors to make.





Answer: D

Which of the following statements is not true about materiality judgments?

Which of the following statements is not true about materiality judgments?

a. The auditor's consideration of materiality is influenced by the auditor's perception of the needs of users of financial statements.
b. The auditor considers materiality only in relation to classes of transactions, account balances, and disclosures.
c. Materiality judgments are used to help the auditor gather sufficient appropriate evidence about whether the financial statements are free of material misstatement.
d. Materiality decisions differ from one audit client to another.








Answer: A

For nonprofit entities, appropriate benchmarks for materiality judgments would include which of the following?

For nonprofit entities, appropriate benchmarks for materiality judgments would include which of the following?

a. Total assets and total liabilities.
b. Total revenues and total assets.
c. Total liabilities, total income, or total assets.
d. Total expenses, total revenues, or total assets.









Answer: D

When a client has significant and nonrecurring charges to nonoperating expenses, which of the following would be the most appropriate materiality benchmark?

When a client has significant and nonrecurring charges to nonoperating expenses, which of the following would be the most appropriate materiality benchmark?

a. Net profit.
b. Income from continuing operations.
c. Cash inflows.
d. Cash outflows.






Answer: A

Although different audit firms take different approaches, performance materiality could be the same as overall materiality, or could be a percentage of overall materiality. Generally this range is which of the following?

Although different audit firms take different approaches, performance materiality could be the same as overall materiality, or could be a percentage of overall materiality. Generally this range is which of the following?

a. 25% to 75% of overall materiality.
b. 50% to 75% of overall materiality.
c. 25% to 50% of overall materiality.
d. 40% to 75% of overall materiality.









Answer: B

Performance materiality helps the auditor to determine which of the following?

Performance materiality helps the auditor to determine which of the following?

a. Extent of audit evidence needed.
b. The specific analytical procedures to perform.
c. The specific substantive procedures to perform.
d. Control risk assessment.






Answer: A

Which of the following would not be a reason to lower the threshold for materiality?

Which of the following would not be a reason to lower the threshold for materiality?

a. The auditor is concerned with potential violations of debt covenants.
b. There were proposed adjusting entries to a particular account in prior years.
c. The consequences of a potential misstatement in an account balance are very high.
d. The audit team wants to limit the amount of time spent at the client's facilities.







Answer: D

Which of the following will the auditor will not consider when making a materiality determination?

Which of the following will the auditor will not consider when making a materiality determination?

a. Potential default on loan covenants.
b. Changes in segment earnings or trends in earnings.
c. Factors that would affect the market's perception of future growth and cash flow for the company.
d. All of these insights would be considered.







Answer: D

Which of the following statements is not true regarding the use of a judgmental approach by auditors in determining whether a misstatement is clearly trivial?

Which of the following statements is not true regarding the use of a judgmental approach by auditors in determining whether a misstatement is clearly trivial?

a. The determination is based on past auditor experience.
b. The determination is usually not very defensible to third-party users.
c. The determination is usually not very defensible to regulators.
d. The determination uses percentages for the likelihood of misstatement.







Answer: D

What document is prepared so that auditors can aggregate potential misstatements in order to assess the materiality of misstatements?

What document is prepared so that auditors can aggregate potential misstatements in order to assess the materiality of misstatements? 

a. The audit opinion.
b. The summary of unadjusted audit differences.
c. The summary of earnings trends.
d. The post-closing trial balance.






Answer: B

In which of the following cases is it not necessary for an auditor to revise the original materiality level and document the new materiality amount, as well as the rationale for changing the amount?

In which of the following cases is it not necessary for an auditor to revise the original materiality level and document the new materiality amount, as well as the rationale for changing the amount?

a. If there is a change in circumstances that involve laws, regulations, or the accounting framework.
b. If there is new information resulting from the risk assessment of the client.
c. If there are changes in the understanding of the client about a new contractual agreement.
d. If the client plans to change depreciation methods for new plant assets procured in the future.






Answer: D

Almost every asset and liability account requires significant judgments. Which of the following judgments is subject to allowance for uncollectibility?

Almost every asset and liability account requires significant judgments. Which of the following judgments is subject to allowance for uncollectibility?

a. Inventories.
b. Marketable securities.
c. Other receivables.
d. Deferred revenue.







Answer: C

Which of the following best describes the nature of assets of held-for-sale operations?

Which of the following best describes the nature of assets of held-for-sale operations?

a. Impairment testing based on most likely sale or disposal price.
b. Impairment testing if plants are closed or equipment is not used.
c. Lower of cost or market impairments, including an allowance for obsolescence.
d. Estimates and assumptions made in preparation of the estimate of income tax expense for the year.







Answer: A

Which of the following statements best describe an issue related to inventory?

Which of the following statements best describe an issue related to inventory?

a. Impairment testing based on most likely sale or disposal price.
b. Subject to allowance for noncollectibility.
c. Lower of cost or market impairments, including an allowance for obsolescence.
d. Subject to estimates made regarding the expected life of the assets and the appropriateness of the depreciation method.







Answer: C

Which of the following is least likely to require significant auditor judgment about the dollar amount to be disclosed in the financial statement?

Which of the following is least likely to require significant auditor judgment about the dollar amount to be disclosed in the financial statement?

a. Contingent liability related to pending litigation.
b. Assumptions made in preparation of the estimate of income tax expense for the year.
c. The value of inventory.
d. Cash on hand at the end of the year.







Answer: D

Which of the following is subject to fair value assessment?

Which of the following is subject to fair value assessment?

a. Marketable securities.
b. Inventory.
c. Property that will be sold.
d. All of the above could require fair value adjustments.









Answer: D

A reference to another auditor under U.S. auditing standards may result in which of the following?

A reference to another auditor under U.S. auditing standards may result in which of the following?

a. A disclaimer of opinion.
b. A qualified audit opinion.
c. An adverse opinion.
d. An unqualified audit opinion with modified wording for all three paragraphs.








Answer: D

A justified departure from GAAP may result in which of the following?

A justified departure from GAAP may result in which of the following?

a. A disclaimer of an audit opinion.
b. An adverse opinion.
c. An unqualified audit opinion with an explanation paragraph before the opinion paragraph or a qualified opinion.
d. A standard unqualified opinion.









Answer: C