Which of the following statements is correct regarding the auditor's determination of materiality?
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 to ensure that the risk of material misstatement is addressed appropriately. Option A is incorrect as the materiality level is not necessarily determined by the balance sheet or income statement alone. Option C is incorrect as rules of thumb may be used for both planning and evaluation levels of materiality. Option D is incorrect as the planning level of materiality is typically higher than the evaluation level of materiality to ensure that the risk of material misstatement is reduced.

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