ExpertMedium1 markMultiple Choice
CPA · Question 78 · Area II: Risk Assessment
Which of the following statements BEST describes the concept of 'Performance Materiality'?
Which of the following statements BEST describes the concept of 'Performance Materiality'?
Answer options:
A.
The maximum amount of misstatement that could exist in an account balance without it being materially misstated.
B.
An amount set by the auditor at less than materiality for the financial statements as a whole to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
C.
The amount below which misstatements are considered clearly trivial.
D.
The materiality level used for the audit of a component in a group audit.
How to approach this question
Performance Materiality = Safety Buffer. Materiality - Buffer = Performance Materiality. It handles the 'aggregate' risk.
Full Answer
B.An amount set by the auditor at less than materiality for the financial statements as a whole to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.✓ Correct
Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole.
Common mistakes
Confusing Performance Materiality with Tolerable Misstatement or Clearly Trivial.
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