April 10, 2019 at 11:55 am #2320104
I'm currently doing an AUD simulation where the last portion of the sims says as following: n
Of the above that we consider misstatements, we should communicate them to management on a timely basis and request management to correct them. For any that management refuses to correct, we should consider their reasons. If we still believe they represent uncorrected misstatements, we should assess whether they have a material effect on the financial statements.
That's fine, what I do not understand is this following part (which turns out to be the “right” answer) – Our approach will be to reassess materiality, consider quantitative and qualitative factors, and determine that the misstatements neither individually nor in total approach materiality.
This is my 3rd attempt at AUD (2X with Becker and currently with Wiley). I'm not sure if Wiley is a bit outdated because I see the videos say 2014 and this may be it. But it does not make sense to reassess materiality because management refused to correct their misstatements! This pretty much cancels my knowledge of everything I have studied so far. Thanks in advance!April 10, 2019 at 1:34 pm #2320230
The only thing that immediately comes to mind is that sometimes a material misstatement due to a departure from GAAP could result in a smaller misstatement than if management had conformed to GAAP. In these cases, the misstatement/materiality is in some ways “reassessed”…though that's not how I would describe it.Perhaps someone with more extensive audit experience can interject here (I do mostly audits for non-profits).
In this question (and in many of the questions across all 4 tests), there are instances where the correct answer makes perfect sense to the question's author(s), but the reader (you) doesn't have the same context…In these cases, you may or may not miss the question.
All you can really do with these questions is go through each choice using GAAS and try to come up with the answer. More often than not you'll figure it out…this one is just worded oddly in my opinion.April 13, 2019 at 7:15 am #2326107
I think you are right. I am typing a MCQ from Becker for your reference.
According to PCAOB standards, when would a company be least likely to reevaluate established materiality levels of tolerable misstatements?
a, There is a substantial likelihood that misstatements of amounts less than the materiality level established for the financial statements a s a whole would influence the judgement of a reasonable investor.
b, Changes that occurred after the materiality levels were originally set are likely to affect investor's perceptions about the company's financial statements.
c, The client has stated that it will not be able to respond to the auditor's request for evidence within the prescribed timeframe.
d, Materiality levels and tolerable misstatement were originally based on estimated or preliminary financial statement amounts that differs significantly from actual amounts.
The answer is C. I feel this statement is similar to what you found in Wiley. I think there is no reason to reevaluate the materiality because of the client's reaction in this context. In fact, if you search “AS 2105: Consideration of materiality in planning and performing an audit” from PCAOB. The examples it list about reevaluation of materiality are b and d.
Sometime we need to trust our own intuition.
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