The Auditors Must Consider Materiality in Planning an Audit Engagement

question 19

Multiple Choice

The auditors must consider materiality in planning an audit engagement.Materiality for planning purposes is:

• A)The auditors' preliminary estimate of the largest amount of misstatement that would be material to any one of the client's financial statements.
• B)The auditors' preliminary estimate of the smallest amount of misstatement that would be material to any one of the client's financial statements.
• C)The auditors' preliminary estimate of the amount of misstatement that would be material to the client's balance sheet.
• D)An amount that cannot be quantitatively stated since it depends on the nature of the item.

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Definitions:

Equilibrium

A state in an economy or market where demand equals supply, and there is no tendency for change.

Complements

Goods or services that are used together, where the increase in the demand for one leads to an increase in the demand for the other.

Substitutes

Goods or services that can replace each other in usage, providing similar utility to the consumer.

Price Increases

A rise in the cost of goods or services, which can affect demand, supply, and the overall economy.