How would increases in performance materiality and increases in inherent risk af

ID: 2392421 • Letter: H

Question

How would increases in performance materiality and increases in inherent risk affect the extent of testing in the search for unrecorded liabilities?

Please add checkmark next to the correct answer(s).

1)Both increases would increase testing.

2)Both increases would decrease testing.

3)An increase in performance materiality would increase testing, while an increase in inherent risk would decrease testing.

4)An increase in performance materiality would decrease testing, while an increase in inherent risk would increase testing.

5)An increase in performance materiality would have no effect on testing, while an increase in inherent risk would decrease testing.

Performance materiality refers to the level within which the misstatements are deemed to be material.

Inherent risk is the susceptability of the risk with the assertion.

If Performance materiality or Inherent risk increases, the auditors need to increase their tests in obtaining audit evidence.

Therefore, Option 1 is correct answer.

If both increases, testing would increase.

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