ACCA AA · Chapter 6 · Question 9 of 11
Which of the following factors would most likely lead the auditor to set performance materiality at a LOWER percentage of overall materiality?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Significant misstatements were identified in the prior year audit
Explanation
Performance materiality reflects the auditor's expectation of misstatements. A history of significant misstatements indicates a higher risk that misstatements will occur again, so the auditor sets performance materiality lower to leave more margin. Strong controls and an experienced team point to a higher percentage, and a rise in profit affects overall materiality rather than the percentage.
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