Which of the following statements is correct regarding the auditor's determination of materiality for a public company audit?
A)The planning level of materiality should normally be the larger of the amount considered for the balance sheet versus the income statement.
B)The auditors' planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts.
C)Auditors may use various rules of thumb to arrive at an evaluation level of materiality,but not for determining the planning level of materiality.
D)The amount used for the planning should equal that used for evaluation.

Question

Quizplus · Accepted Answer

The auditor's planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts. This enables the auditor to focus on areas that are more significant to the financial statements as a whole. A is incorrect because it suggests that there is a predetermined ratio between balance sheet and income statement amounts, which is not the case. C is incorrect because rules of thumb might be used for both planning and evaluation. D is incorrect because the amount used for evaluation can differ from the planning level of materiality.

Which of the Following Statements Is Correct Regarding the Auditor's