The following questions deal with materiality. Choose the best
response.
a. Which one of the following statements is correct concerning the concept of
materiality?
(1) Materiality is determined by reference to guidelines established by the AICPA.
(2) Materiality depends only on the dollar amount of an item relative to other items
in the financial statements.
(3) Materiality depends on the nature of an item rather than the dollar amount.
(4) Materiality is a matter of professional judgment.
b. In considering materiality for planning purposes, an auditor believes that misstate-
ments aggregating $10,000 will have a material effect on an entity’s income statement,
but that misstatements will have to aggregate $20,000 to materially affect the balance
sheet. Ordinarily, it is appropriate to design audit procedures that are expected to de-
tect misstatements that aggregate
(1) $20,000.
(2) $15,000.
(3) $10,000.
(4) $30,000.
c. A client decides not to record an auditor’s proposed adjustments that collectively are
not material and wants the auditor to issue the report based on the unadjusted num-
bers. Which of the following statements is correct regarding the financial statement
presentation?
(1) The financial statements are free from material misstatement, and no disclosure
is required in the notes to the financial statements.
(2) The financial statements do not conform with generally accepted accounting
principles (GAAP).
(3) The financial statements contain unadjusted misstatements that should result in
a qualified opinion.
(4) The financial statements are free from material misstatement, but disclosure of
the proposed adjustment is required in the notes to the financial statements.
