TCO C) According to PCAOB standards, when would a company be least likely to ree
ID: 2342015 • Letter: T
Question
TCO C) According to PCAOB standards, when would a company be least likely to reevaluate established materiality levels or tolerable misstatements? Changes that occurred after the materiality levels were originally set are likely to affect investor’s perceptions about the company’s financial statements. The client has stated that it will not be able to respond to the auditor’s request for evidence within the prescribed timeframe. Materiality levels and tolerable misstatement were originally based on estimated or preliminary financial statement amounts that differ significantly from actual amounts. There is a substantial likelihood that misstatements of amounts less than the materiality level established for the financial statements as a whole would influence the judgment of a reasonable investor.
Explanation / Answer
Answer : option B
Choice "b" is correct. The client’s request for an extension to submit documentation generally would not have an impact on established materiality levels or tolerable misstatements.
Choice "d" is incorrect. If there is a belief that misstatements of an amount below the current materiality level would influence the judgment of a reasonable investor, then by definition, materiality is not at its correct level. Materiality is defined in part by the level at which information begins to influence the judgment of a reasonable person.
Choice "c" is incorrect. If materiality levels were based on preliminary or estimated data, they should be revised when the actual amounts are known.
Choice "a" is incorrect. If changes have occurred that will likely affect the investor’s perception about the financial information, the materiality level should be revised accordingly.
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