Chapter 1 – The Demand for Audit and Other Assurance Services

Materiality and RiskChapter 9©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 1Learning Objective 1Apply the concept of materialityto the audit.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 2MaterialityIt is a major consideration in determiningthe appropriate audit report to issue.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 3MaterialityThe auditor’s responsibility is to determinewhether financial statements arematerially misstated.If there is a material misstatement,the auditor will bring it to the client’sattention so that a correction can be made.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 4Steps in Applying MaterialityStep Set preliminary judgment1 about materialityPlanningextentAllocate preliminary of testsStep judgment about2 materiality tosegments©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 5Steps in Applying MaterialityStep Estimate total3 misstatement in segmentStep Estimate theEvaluating4 combined misstatementresultsCompare combinedStepestimate with judgment5about materiality©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 6Learning Objective 2Make a preliminary judgmentabout what amounts toconsider material.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 7Set Preliminary Judgment ...