IAHCSMM PRACTICE TEST 497 EXAM
SCRIPT COMPREHENSIVE STUDY GUIDE
QUESTIONS WITH ACCURATE SOLUTIONS
●● According to the text, the first step in applying materiality to an audit
is
Answer: to determine a materiality level for the overall FS
●● Which of the following is not a qualitative factor that may affect an
auditor's establishment of materiality?
a.) firm policy sets materiality at 4% of pretax income
b.) potential for fraud
c.) the company's close to violating loan covenants
d.) a small misstatement would interrupt earnings fraud
Answer: a
●● An auditor has determined a $10 million materiality level for a
client's balance sheet and a 3$ million materiality level for the client's
income statement. As a result, the auditor will consider items in the audit
to be material if they individually or collectively could result in a
misstatement of...
Answer: $3 million or more
, ●● Tolerable misstatement is also called performance materiality by the
AICPA
Answer: True
●● An auditor discovers several immaterial errors that the auditor
determines do not, individually or in the aggregate, cause the financial
statements to be materially misstated. The auditor proposes adjusting
entries to the client, who refuses to correct the errors. What should the
auditor do?
a.) withdraw from the engagement because the client's refusal to correct
the errors is a scope limitation
b.) document the errors and the conclusion that the FS are free from
material misstatement
c.) correct the errors on the client's behalf and then issue the audit report
d.) issue a qualified, "except for" opinion on the FS because the client
refuses to correct the errors
Answer: b
●● Tolerable misstatement is
Answer: materiality used to establish a scope for the audit procedures for
the individual account balance
●● Which of the following would an auditor most likely use in
determining the auditor's overall materiality?
Answer: the entity's quarterly FS
SCRIPT COMPREHENSIVE STUDY GUIDE
QUESTIONS WITH ACCURATE SOLUTIONS
●● According to the text, the first step in applying materiality to an audit
is
Answer: to determine a materiality level for the overall FS
●● Which of the following is not a qualitative factor that may affect an
auditor's establishment of materiality?
a.) firm policy sets materiality at 4% of pretax income
b.) potential for fraud
c.) the company's close to violating loan covenants
d.) a small misstatement would interrupt earnings fraud
Answer: a
●● An auditor has determined a $10 million materiality level for a
client's balance sheet and a 3$ million materiality level for the client's
income statement. As a result, the auditor will consider items in the audit
to be material if they individually or collectively could result in a
misstatement of...
Answer: $3 million or more
, ●● Tolerable misstatement is also called performance materiality by the
AICPA
Answer: True
●● An auditor discovers several immaterial errors that the auditor
determines do not, individually or in the aggregate, cause the financial
statements to be materially misstated. The auditor proposes adjusting
entries to the client, who refuses to correct the errors. What should the
auditor do?
a.) withdraw from the engagement because the client's refusal to correct
the errors is a scope limitation
b.) document the errors and the conclusion that the FS are free from
material misstatement
c.) correct the errors on the client's behalf and then issue the audit report
d.) issue a qualified, "except for" opinion on the FS because the client
refuses to correct the errors
Answer: b
●● Tolerable misstatement is
Answer: materiality used to establish a scope for the audit procedures for
the individual account balance
●● Which of the following would an auditor most likely use in
determining the auditor's overall materiality?
Answer: the entity's quarterly FS
