MATERIALITY AND RISK

Spring 2016

This project is intended to provide you with some experience in making judgments that auditors commonly have to make. Use WORD (or an equivalent) to complete the entire project. Projects should be submitted in hardcopy form on a single page (credit will not be given for any information on pages after the first page) in class on March 17. However, if it turned in to me or my mailbox through giving it to an administrative assistant in BA 223 by 1:30 pm on the day due there is no penalty (but make sure the time is recorded by the administrative assistant in BA 223). A 5 point penalty per day is given for late projects. A 5 point penalty is given if you turn it in electronically.

ASSIGNMENT:

1. Explain why professional judgment is necessary when making materiality decisions (including, for example, when establishing the preliminary judgment about materiality and when evaluating the materiality of identified misstatements).

2. Certain misstatements might be more important than others, even if the dollar amounts are the same, because of qualitative factors. Qualitative considerations also might cause a quantitatively small misstatement to be material. Identify three qualitative factors or considerations that might significantly affect an auditor's materiality judgment, and give an example of each.

3. Results of auditing procedures might indicate that either control risk or inherent risk is higher than the auditor had anticipated. Describe the different ways the auditor can respond to the resulting decrease in planned detection risk.