ACCA Advanced Audit and Assurance (AAA) Practice Exam

What does ISA 320 focus on regarding audit planning and performance?

1. The application of professional skepticism

2. The implementation of internal controls

3. The appropriate application of materiality

4. The assessment of audit risks

The correct answer is: The appropriate application of materiality

ISA 320, titled "Materiality in Planning and Performing an Audit," specifically addresses the concept of materiality in the context of an audit. It emphasizes the need for auditors to determine and apply materiality when planning the audit and while performing audit procedures. This involves setting materiality levels that reflect the financial statements' overall context and the specific areas that may be prone to material misstatements. The standard guides auditors on establishing materiality thresholds, considering both quantitative and qualitative factors, which can influence the financial statements' reliability. Thus, the focus on the appropriate application of materiality is crucial for ensuring that auditors can identify and respond effectively to potential misstatements that could affect users' decisions based on the financial statements. The other aspects mentioned, such as professional skepticism, internal controls, and audit risk assessment, are part of the broader audit process but are not the central focus of ISA 320. While professional skepticism is essential for auditors, and internal controls and audit risks are critical components of audit planning and execution, ISA 320 is specifically concerned with how materiality should be understood and applied throughout the audit process.