Audit risk and materiality should be considered when planning and performing an audit of financial statements in accordance with generally accepted auditing standards. Audit risk and materiality should also be considered together in determining the nature, timing, and extent of auditing procedures and in evaluating the results of those procedures.

Required:

a. 1. Define materiality.

2. Discuss the factors affecting its determination.

3. Describe the relationship between materiality for planning purposes and materiality for evaluation purposes.

b. 1. Define audit risk.

2. Describe its components of inherent risk, control risk, and detection risk.

3. Explain how these components are interrelated.