University of the West Indies, Mona

Department of Management Studies

ACCT3043 – Auditing I
TUTORIAL QUESTIONS 4

1. What is meant by setting a preliminary judgment about materiality? Identify the most
important factors affecting the preliminary judgment. (2 marks)

2. Distinguish between the terms performance materiality and preliminary judgment about
materiality. How are they related to each other? (3 marks)

3. List 3 qualitative and quantitative factors inflencing materiality (6 marks)

4. Describe the factors that are generally considered in determining materiality. (8 marks)
5. Why is it important for the auditor to consider the risk of material misstatement at the
overall financial statement level? (2marks)
6. Provide two examples of factors that might increase the risk of material misstatement at
the overall financial statement level. (2marks)
7. Below are 10 independent (one does not affect the other) risk factors:
i. The client lacks sufficient working capital to continue operations.
ii. The client fails to detect employee theft of inventory from the warehouse because there
are no restrictions on warehouse access and the client does not reconcile inventory on
hand to recorded amounts on a timely basis.
iii. The company is publicly traded (i.e. listed on the stock exchange).
iv. The auditor has identified numerous material misstatements during prior year audit
engagements.
v. The assigned staff on the audit engagement lack the necessary skill to identify actual
errors in an account balance when examining audit evidence accumulated.
vi. The client is one of the industry’s largest, based on its size and market share.
vii. The client engages in several material transactions with entities owned by family
members of several of the clients senior executives.
viii. The allowance for doubtful accounts is based on significant assumptions made by
management.
ix. The audit plan omits several necessary procedures.
x. The client fails to reconcile bank accounts to recorded cash balances.
Identify which of the following risk relates most directly to each of the ten factors (only
one risk should be mapped to each factor):
a. Acceptable audit risk b. Planned detection risk
c. Inherent risk d. Control risk

Present your answer as a list, using factor numbers and risk letters only
(10 marks)