Question

Ringer. CPA, has been engaged to audit Tech Co., a publicly traded company. In planning the audit, Ringer uses 3% of income before taxes as an overall materiality threshold and 50% of overall materiality as the tolerable misstatement. If, as a result of substantive testing. Tech Co.'s pretax earnings of $20 million are found to be overstated by 4% due to errors in revenue recognition, Ringer would likely take all of the following actions when evaluating the audit findings, except Multiple Choice Recalculate the materially thresholds. Reevaluate the materiality of other misstatements found. O Qualify the audit report because the financial statements are materially misstated. Request that management correct the errors causing the material overstatement.

Answer 1

OPTION - Qualify the audit report because the financial statements are materially misstated.

While determining the materiality threshold limit, if any uncertainties are faced it can be recalculated, reevaluate the materiality threshold limits and inform the management to correct the misstatements in the financial statements except qualify the audit report.

Without performing sampling/materiality level on the financial statements auditor cannot qualify the audit report.