Part 4 Materiality Considerations (35 points) 1. Define the term "Materiality". 2- The concept of Materiality is considered to have a "Quantitative" dimension. This was illustrated by: Quantitative materiality equals [Rate] multiplied by a [Base]. Show a possible "rate" and "base". RATE BASE 3. As the "amount considered material" goes down, the amount of audit work (i.e. evidence) done on an audit: A. Stay the same. B. Goes down. C. Goes up. 4. Discuss the Tolerable Misstatement situation shown below. The auditor determines materiality for the company being audited to be $35,000. Tolerable misstatement of $15,000 is assigned to each of the following four accounts. Unknown errors in each account are indicated below. Audit work is performed on each account as discussed in class [i.e. "All" or "Nothing" game]. The client makes any corrections to accounts as suggested by the auditor. After the completion of audit work, the auditor issues an unqualified (i.e. GOOD) auditors' opinion. Was this the correct opinion? Discuss and show applicable calculations. Account Unknown error in account before any audit work is done (all accounts are overstated) $ 50,000 36,000 Cash Accounts receivable Prepaid Assets Property, Plant and Equipment 5,000 12,000