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Essay text:
In other words, firms would prefer to have their auditors establish similar materiality judgments for clients with similar circumstances.
3-2 The three major steps in applying materiality are:
Step 1: Establishing a preliminary judgment about materiality. The auditor establishes a preliminary judgment about materiality by choosing a base, or bases, which is multiplied by a percentage factor to determine the initial quantitative judgment about materiality. This amount can be adjusted for qualitative factors that may be relevant for the engagement.
Step 2: Allocating the preliminary judgment about materiality to account balances or classes of transactions...
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