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Hi,
I’m writing regarding to the AUD material from Becker’s Review, Chapter 2, Module 6 (Materiality). There is a question (Q CPA-04685) that provides an answer, but it gets me confused the response. I believe the response is other than the answer selected (per the explanation). Provides a correct answer for $98k but below shows the calculation of the answer for $70k.
Please can someone advise if this was an error in the selection of the answer or I am not understanding the explanation. I would appreciate any response regarding this matter.
Thank you,
Question CPA-04685:
Tracy, senior accountant at JFM CPA Firm, is determining the performance materiality for her client in Year 2. Tracy expects that there will be a high likelihood of uncorrected and undetected misstatements.
JFM CPA Firm’s materiality guidelines advise the auditor to set performance materiality in the range of 50% to 70% of overall materiality based on the likelihood of misstatement. Tracy has calculated overall materiality at $140k.
Tracy will most likely set performance materiality closes to:
Correct answer: A) $98,000
Choice “A” is correct.
$140k (overall materiality) X 50% (lower range provided in audit firm guidance) = $70,000. Tracy believes that there is a high likelihood of uncorrected and undetected misstatements. Therefore, Tracy most likely will use a percentage closer to the lower end of the range provided in firm guidance. Generally, if there is a high likelihood of misstatements then auditor sets materiality at a lower amount, which results in the auditor looking closer at audit evidence.
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