AAA – L3 – SA – Q5.6 – Audit evidence

What factors influence an auditor’s materiality decision?

Question

Which of the following will influence an auditor’s decision as to whether a matter is material?

1 Degree of approximation

2 Losses or low profits

3 Time of occurrence during the year

4 Offset and aggregation

A 1,2 and 3 only

B 1,3 and 4 only

C 2,3 and 4 only

D 1,2 and 4 only

Answer

Explanation: Materiality is influenced by the degree of approximation (1), as estimates increase uncertainty; losses or low profits (2), as they heighten sensitivity to misstatements; and offset and aggregation (4), as these affect the net impact of errors. The timing of an event during the year (3) is generally irrelevant to materiality, making option D (1,2, and 4) correct.

Tags: Aggregation, Approximation, Audit judgment, Materiality, Profitability
Level: Level 3

Topic: Audit Evidence

Uploader: Salamat Hamid