Question

According to the text, the first step in applying materiality to an audit is

a) Identifying financial statement assertions
b) Assessing qualitative factors
c) Setting preliminary judgments about materiality
d) Determining performance materiality

Answer 1

The initial step in applying materiality during an audit is setting preliminary judgments about materiality. This sets the baseline for what differences would be significant for users of the financial statements. Thus, the option c is the correct answer.

Step-by-step explanation:

The first step in applying materiality to an audit is c) Setting preliminary judgments about materiality. This involves determining an amount which variations from the true value would be considered material or significant to the users of the financial statements. Once a preliminary judgment about materiality is established, an auditor can then consider additional qualitative and quantitative factors that could influence materiality decisions throughout the audit process.