Audit Assignment 3 Discussion Questions

1. Explain why decisions about acceptable audit risk, inherent risk, the preliminary judgment about materiality, and performance materiality should be made early in the audit during the planning phase.

2.Explain how the levels of acceptable risk and preliminary materiality might affect the the the audit process. Specifically, what effect would lower levels of acceptable risk and materiality have on audit testing compared to the levels you selected.

3.Why is net income before tax the most common base used to determine the preliminary judgment materiality? In what circumstances might the auditor use a different base?

4.Explain/justify how to chose the performance materiality amounts for each of the following accounts: (a) accounts receivable, (b) allowance for bad debts,(c) accounts payable.

5.Explain/justify why the sum of performance materiality is allowed to exceed the preliminary judgment about materiality.