1. Materiality underlies the application of generally accepted auditing standards, particularly the: a. general and field work standards. b. general and reporting standards. c. field work and reporting standards. d. reporting standards. e. general standards.

2. Which of the following is not a weakness of analytical procedures? a. Fraudulent financial reporting often reports numbers that appear to be reasonable. b. The auditor may have no basis for presuming that the data used is accurate. c. Analytical procedures are usually very cost effective. d. Improper specification of relationships between the variables used may undermine their effectiveness. e. Any audit procedure runs some risk of failing to detect material misstatements.

3. The auditor makes preliminary judgments about materiality levels in planning the audit. This materiality assessment is referred to as: a. planning materiality. b. preliminary materiality. c. initial materiality. d. beginning materiality. e. benchmark materiality.

4. When setting the level of materiality on a particular engagement, the auditor is required to consider: a. the unique circumstances pertaining to the entity. b. the information needs of the users. c. neither the unique circumstances pertaining to the entity nor the information needs of the users. d. the information needs of the client. e. both the unique circumstances pertaining to the entity and the information needs of the users.

5. In a normal audit, the relationship between the level of materiality used to plan the engagement and the level of materiality used to evaluate evidence is: a. they must be identical. b. the former may be either higher or lower than the latter. c. the former is normally higher than the latter. d. the former is normally lower than the latter. e. they can never be the same.

6. In planning the audit, the auditor should assess materiality at two levels: a. the preliminary level and the final level. b. the company level and the divisional level. c. the account balance level and the detailed item level. d. the financial statement level and the account balance level. e. the account balance level and the transaction level.

7. Materiality at the account balance level is stated in planning an audit because: a. some users make decisions based upon individual account balances. b. the auditor verifies account balances in reaching an overall conclusion on the fairness of the financial statements. c. the opinion on the fairness of the financial statements extends to the individual account balances. d. official pronouncements have specified different levels of materiality for various financial statement items. e. the opinion on the fairness of the financial statements extends to the individual transactions.

8. In making a preliminary judgments about materiality, the auditor initially determines the aggregate (overall) level of materiality for each statement. For planning purposes, the auditor should use the: a. levels separately. b. level he or she judges to be the more reliable. c. average of these levels. d. largest aggregate level. e. smallest aggregate level.

9. Quantitative guidelines for setting materiality levels are currently provided by: a. neither GAAP nor GAAS. b. GAAP. c. GAAS. d. both GAAP and GAAS. e. the AICPA.

10. Professional standards recognize that a misstatement that is quantitatively immaterial may be qualitatively material. In regard to these items, professional standards require the auditor to: a. plan the audit to search for them. b. design explicit procedures to detect them. c. be on the alert for them. d. report them to the audit committee. e. report them directly to client management.