1- Define the term "materiality"
2- The concept of materiality is considered to have a "Qualitative" dimension. Explain what is meant by this term, give an example.
3- Briefly explain the relationship between "materiality" and the amount of audit work (I.e. evidence) done on an audit.
4- Discuss the Tolerable Misstatement situation shown below.
The auditor determines materiality for the company being audited to be 60,000. Tolerable misstatement of 30,000 is assigned to each of the following four accounts. Unknown errors in each of the accounts are indicated below. Audit work is performed on each account as discussed in class. The client makes any corrections to accounts as suggested by the auditor. After the completion of audit work, the auditor issues an unqualified (i.e. GOOD) auditors' opinion ? Discuss and show applicable calculations.
Account Unknown error in account before audit work is done
all accounts are overstated)
Cash 50,000
Accounts receivable 36,000
Prepaid Assets 5,000
Property, Plant and Equipment 12,000