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ISA 320, Materiality in planning and performing an audit
ISA 320 states that, assessing what is or is not material is a matter of professional judgement, in this context auditors are entitled to assume that users have a reasonable knowledge of business and are willing to study the information in the financial statements diligently. Here on MCQs.club we have made fully understandable Multiple-Choice Questions (MCQs) on ISA 320 revised IFAC that cover MCQs on ISA 320 Audit Materiality, the summary of ISA 320, ISA 320 MCQs with answers, covering the SA 320 concept of Materiality. The MCQ on SA 320 are helpful for Professional accountancy exams, Competitive exams and Business management exams.
- ‘Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.’
- The above statement is correct
- The above statement is incorrect
- The determination of materiality is a matter of professional judgment. The auditor must consider:
- Whether the misstatement would affect the economic decision of the users
- Both the size and nature of misstatements
- The information needs of the users as a group.
- All of the above
- ISA 320 recognises the need to establish a financial threshold to guide audit planning and procedures. Which of the following benchmarks maybe used?
- ½ – 1 % of revenue
- 5% – 10% of profit before tax
- 1 – 2% of total assets.
- All of the above
- Materiality is not just a purely financial concern. Some items may be material by nature. Examples of items which are material by nature or material by impact include:
- Misstatements that affect compliance with regulatory requirements or debt covenants.
- Misstatements that, when adjusted, would turn a reported profit into a loss for the year.
- Transactions with directors, e.g. salary and benefits, personal use of assets, etc.
- All of the above
- ISA 320 states that, assessing what is or is not material is a matter of professional judgement, in this context auditors are entitled to assume that users:
- have a reasonable knowledge of business and are willing to study the information in the financial statements diligently
- understand that financial statements are prepared, presented and audited to levels of materiality
- recognise the uncertainties inherent in certain amounts in the financial statements (such as provisions)
- All of the above
- ISA 320 requires the auditor to apply the concept of materiality:
- when planning and performing the audit
- when evaluating the effect of misstatements on the financial statements and therefore on his audit opinion
- Both A&B
- None
- Performance materiality – is ‘The amount set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.’
- The above statement is correct
- The above statement is incorrect
- Which of the following is correct?
- The auditor sets performance materiality at a value lower than overall materiality, and uses this lower threshold when designing and performing audit procedures.
- Performance materiality reduces the risk that the auditor will fail to identify misstatements that are material when added together.
- Both A&B
- None
- Which of the following is correct?
- At the planning stage, the auditor must determine materiality for the financial statements as a whole.
- As the audit progresses, the auditor must revise materiality (and, if appropriate, materiality for particular areas and performance materiality) if he becomes aware of information which would have caused him to have initially set different levels, had that information been known to him at the time.
- Documentation must include details of all materiality levels set and any revision of these levels as the audit progresses.
- All of the above
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