CW6 - Materiality
CW6 - Materiality
1. Which of the following would an auditor most likely use in determining the auditor’s
preliminary judgment about materiality for the financial statements as a whole? A. The
anticipated sample size of the planned substantive tests.
B. The entity’s year-to-date financial results and position.
C. The results of the internal control questionnaire.
D. The contents of the management representation letter.
2. The auditor is required to determine three different levels of materiality: (1) materiality for
the financial statements as a whole, (2) performance materiality, and (3)
A. Overall materiality C. General materiality
B. Planning materiality D. Specific materiality
3. What materiality level would be considered by the auditor to determine whether the
proposed adjustments are significant or not?
A. Overall materiality C. Specific materiality
B. Scoping materiality D. Performance materiality
4. Which of the following factors are normally considered by the auditor in determining the
appropriate benchmark for the purpose of calculating overall materiality? I. Components of
the entity’s financial statements II. Laws and regulations
III. Nature of the entity
A. I and II only C. II and III only
B. I and III only D. I, II, and III
5. In considering materiality for planning purposes, the auditor believes that misstatements
aggregating P60,000 would have material effect on an entity’s income statement, but that
misstatements would have to aggregate P40,000 to materially affect the statement of
financial position. Ordinarily, it would be appropriate to design auditing procedures that
would be expected to detect misstatements that aggregate:
A. P40,000 C. P60,000
B. P50,000 D. P100,000
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CPAR - MANILA AT-9006
8. The concepts of audit risk and materiality are interrelated and must be considered together
by the auditor. Which of the following is true?
A. Audit risk is the risk that the auditor may unknowingly express a modified opinion when,
in fact, the financial statements are fairly stated.
B. The phrase in the auditor’s report “present fairly, in all material respects, in accordance
with Philippine Financial Reporting Standards” indicates the auditor’s belief that the
financial statements as a whole are not materially misstated.
C. If misstatements are not important individually but are important in the aggregate, the
concept of materiality does not apply.
D. Material fraud but not material errors cause financial statements to be materially
misstated.
9. In evaluating the fair presentation of the financial statements, the auditor should assess
whether the aggregate of uncorrected misstatements that have been identified during the
audit is material. The aggregate of uncorrected misstatements comprises
I. Specific misstatements identified by the auditor including the net effect of uncorrected
misstatements identified during the audit of previous period.
II. The auditor’s best estimate of other misstatements which cannot be specifically identified.
A. I only. C. Both I and II.
B. II only. D. Neither I nor II.
10. A client decides not to correct misstatements communicated by the auditor that collectively
are not material and wants the auditor to issue the report based on the uncorrected
numbers. Which of the following statements is correct regarding the financial statement
presentation?
A. The financial statements are free from material misstatement, and no disclosure is
required in the notes to the financial statements.
B. The financial statements are not in accordance with the applicable financial reporting
framework.
C. The financial statements contain uncorrected misstatements that should result in a
qualified opinion.
D. The financial statements are free of material misstatement, but the disclosure of the
proposed adjustments is required in the notes to the financial statements.
12. For audits of financial statements made in accordance with PSAs, the use of analytical
procedures is required to some extent
In the As a In the
Planning Stage Substantive Test Review Stage
A. Yes Yes Yes
B. Yes No Yes
C. No Yes Yes
D. Yes Yes No
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CPAR - MANILA AT-9006
B. Projecting an error rate by comparing the results of a statistical sample with the actual
population characteristics.
C. Computing accounts receivable turnover by dividing credit sales by the average net
receivables.
D. Developing the expected sales based on the sales trend of the prior five years.
15. The objective of performing analytical procedures as risk assessment procedures in an audit
is to identify
A. Unusual transactions and events.
B. Noncompliance with laws and regulations that went undetected because of internal
control weaknesses.
C. Relate party transactions.
D. Recorded transactions that were properly authorized.
18. Which of the following items tend to be the most predictable for purposes of analytical
procedures applied as substantive tests? A. Relationships involving balance sheet accounts
B. Transactions subject to management discretions
C. Relationships involving income statement accounts
D. Data subject to audit testing in the prior period
19. The primary objective of analytical procedures used in the overall review stage of an audit is
to
A. Obtain evidence from details testing to corroborate particular assertions.
B. Identify areas that represent specific risks relevant to the audit.
C. Assist the auditor in assessing the validity of the conclusions reached.
D. Satisfy doubts when questions arise about a client’s ability to continue in existence.
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