Why Do Auditors Establish a Preliminary Judgment About Materiality

question 110

Multiple Choice

Why do auditors establish a preliminary judgment about materiality?

• A)To determine the appropriate level of staff to assign to the audit
• B)So that the client can know what records to make available to the auditor
• C)To help plan the appropriate evidence to accumulate
• D)To finalize the control risk assessment

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Definitions:

Net Working Capital

The difference between a company's current assets and current liabilities, indicating its short-term financial health.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within a year's time, such as cash, inventory, and receivables.

Current Liabilities

Short-term financial obligations that a company owes and is expected to pay within one year or its operational cycle, whichever is longer.

Compensating Balance

A minimum bank account balance that a borrower must maintain as a condition for obtaining a loan.