Question

Which of the following statements regarding setting materiality is correct?

1) When determining planning materiality, auditors will use professional skepticism and are mindful of the secondary users of the financial statements.
2) The auditing standards do not require the auditors reevaluate their overall level of materiality throughout the audit.
3) Audit firms must not vary in the method they use to set planning materiality in the risk assessment phase.
4) In selecting an appropriate benchmark, auditors can choose an item from the balance sheet or the income statement.

Answer 1

Statement 4 is correct; auditors can choose an appropriate benchmark for materiality from either the balance sheet or the income statement.

Step-by-step explanation:

The question pertains to the setting of materiality levels in the context of an audit. When addressing the provided statements:

• Statement 1: Auditors use professional skepticism and consider both primary and secondary users of the financial statements when determining planning materiality, which is correct.
• Statement 2: This is incorrect, as auditing standards typically require auditors to reevaluate their materiality levels throughout the audit process to ensure relevance.
• Statement 3: It is inaccurate to suggest that audit firms must not vary in their methods; different firms may use different methods based on the audit's context.
• Statement 4: This is correct. Auditors are allowed to select appropriate benchmarks for materiality from either the balance sheet or the income statement based on which is more relevant to the client's financial situation.

Considering these explanations, statement 4 is the correct option regarding setting materiality in auditing.