CA Inter P5 · Chapter 2 · Question 10 of 11
Under SA 320, the main purpose of setting performance materiality at an amount lower than materiality for the financial statements as a whole is to:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole
Explanation
SA 320 explains that planning only to detect individually material misstatements ignores the fact that misstatements which are individually immaterial may add up to a material amount, together with undetected misstatements. Performance materiality is set below overall materiality to provide a margin for this aggregation risk. It does not mean smaller misstatements are ignored, and it is not a reporting threshold.
More Audit Strategy, Audit Planning and Audit Programme MCQs
- Q1According to SA 300, the overall audit strategy:
- Q2Which of the following is a matter included in the audit plan rather than in the overall audit strategy?
- Q3Midway through the audit of Neelgiri Tea Ltd., the audit team learns that a major subsidiary has been sold. The engagement partner says…
- Q4SA 300 requires which of the following persons to be involved in planning the audit?
- Q5Which of the following is NOT a preliminary engagement activity required at the beginning of the current audit engagement under SA 300?