Anne Taylor 7.1

1.

(a) Different materiality bases are under consideration when determining planning materiality because each audit is unique. Audits are unique in the fact that they can cater to a vast number of stakeholders. These stakeholders all have different concerns and the audit can be customized to their individual needs. Examples of common stakeholders include investors, creditors such as banks, suppliers and local, state and federal governments.

(b) Different materiality thresholds are relevant to different audit engagements because materiality could be different in one engagement compared to another. Materiality thresholds must be unique to each engagement because different organizations can hold different positions with in the industry and a figure that isn’t material for a large firm may be material in a smaller firm, had they used the same materiality threshold.

(c) The materiality base that results in the smallest threshold is generally used for planning purposes because the audit must be reasonably assured. When small misstatements are able to slip through the cracks of the audit they can influence future decisions. The audit can’t be reasonably assured under this situation and doesn’t serve its main purpose.

(d) Risk of management fraud is considered when determining tolerable misstatement because their misstatements will most likely influence net income. Management is understate liabilities and overstate assets to move net income in a positive direction. Management misstatements will less likely influence net income in a manner that doesn’t benefit managers themselves.

(e) An auditor might not use the same tolerable misstatement amount or percentage of an account balance for all financial accounts cause each account has different characteristics. These unique characteristics include influence on users and amount of the account. Auditing is done to provide reasonable assurance to users at the least expensive cost. When setting...