For multiple choice questions, select your answer and explain why you selected your choice. Remember to cite your sources. For essay questions, answer the question and cite your source.
1. Explain how an auditor determines the materiality level that will be used in an audit. Define the concept of materiality and compare the term to pervasively material misstatements. Auditors set the materiality level for items that will be reviewed – in other words, items above a certain level will be reviewed. Answer the following multiple choice question:
In considering materiality for planning purposes, if an auditor believes that misstatement aggregating $10,000 would have a material effect on an entity’s income statement but that misstatements would have to aggregate $20,000 to materially affect the balance sheet, then what would be the appropriate level to set in designing auditing procedures that would be expected to detect misstatements?
2. There are four general types of financial statement audit reports: examinations, reviews, agreed-upon procedures, and compilations. Explain the nature of and purpose for of each type of financial statement audit report.
3. Explain the difference between restricted-use reports and general-use reports.
4. Describe the purpose and key features of the unqualified financial statement audit reports.
5. Explain the circumstances that result in departure from the auditor’s standard report – and explain how the financial statement audit report would be modified.
6. Explain the purpose and key features of reports on internal controls. Go to a publicly traded company of your choice and discuss the report on internal controls reported by the company you selected. Be sure to cite the source of your company’s report on internal controls.