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Audit Planning,
Types of Audit
Tests, and
Materiality
McGraw-Hill/Irwin
LO# 1
3-2
LO# 2
LO# 3
LO# 4
3-5
LO# 5
Internal Auditors
3-6
LO# 6
LO# 7
3-8
LO# 7
3-9
LO# 9
Tests of Controls
Substantive
Procedures
LO# 10
Materiality
The
The magnitude
magnitude of
of an
an omission
omission or
or misstatement
misstatement of
of
accounting
accounting information
information that
that makes
makes itit probable
probable that
that
the
the judgment
judgment of
of aa reasonable
reasonable person
person relying
relying on
on
the
the information
information would
would be
be changed
changed or
or influenced
influenced
by
by the
the omission
omission or
or misstatement.
misstatement.
Materiality is not an absolute and
it is not a black or white issue!
The determination of materiality
requires professional judgment.
3-11
LO# 11
Step
Step 1:
1:
Determine
Determine aa materiality
materiality level
level for
for the
the overall
overall financial
financial statements
statements
(planning
(planning materiality)
materiality)
Step
Step 2:
2:
Determine
Determine tolerable
tolerable misstatement
misstatement
(allocation
(allocation of
of materiality
materiality at
at individual
individual account/class
account/class of
of transactions
transactions level)
level)
Step
Step 3:
3:
Evaluate
Evaluate auditing
auditing findings
findings
(near
(near the
the end
end of
of the
the audit)
audit)
3-12
End of Chapter 3
3-13