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1. Which of the following conditions justifies an auditor’s decision of raising the materiality level? a.  ...

1. Which of the following conditions justifies an auditor’s decision of raising the materiality level?

a.   Internal control over cash receipts is excellent.

b.   Application of analytical procedures reveals a significant increase in sales revenue in December, the last month of the fiscal year.

c.   Internal control over shipping, billing, and recording of sales revenue is weak.

d.   Study of the business reveals that the client recently acquired a new company in an unrelated industry.

2. The overall objectives of the auditor in conducting an audit of financial statements are

I. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether caused by fraud or error

II. To report on the financial statements

III. to obtain conclusive rather than persuasive evidence

IV. To detect all misstatements, whether due to fraud or error.

a. II and IV only

b. I and II only

c. I, II, III, and IV

d. I, II and III only

Business   Accounting   
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Answer #1

Part 1) OPTION C------Internal control over shipping, billing and recording of sales revenue is weak.

Above condition justifies an auditor's decision of raising the materiality level.Since financial statements will be materially misstated and financial data will be unreliable for any use.

Part 2)OPTION B-----I and II only

Overall objective of auditor includes

To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether caused by fraud or error

AND to report on the financial statements.

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