ExpertMedium1 markMultiple Choice
CPA · Question 12 · Area II: Risk Assessment
An auditor is planning the audit of a nonissuer. Which of the following statements BEST describes the concept of 'performance materiality'?
An auditor is planning the audit of a nonissuer. Which of the following statements BEST describes the concept of 'performance materiality'?
Answer options:
A.
The maximum error in a population that the auditor is willing to accept.
B.
An amount set by the auditor at less than materiality for the financial statements as a whole to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
C.
The amount below which misstatements are considered clearly trivial and do not need to be accumulated.
D.
The materiality level determined for specific classes of transactions, account balances, or disclosures.
How to approach this question
Define Performance Materiality: It's a 'haircut' on overall materiality to create a safety margin for aggregation risk.
Full Answer
B.An amount set by the auditor at less than materiality for the financial statements as a whole to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.✓ Correct
An amount set by the auditor at less than materiality for the financial statements as a whole to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
Performance materiality is set to 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.
Common mistakes
Confusing Performance Materiality with Tolerable Misstatement or Clearly Trivial threshold.
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