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  ©2003 Prentice Hall Business Publishing,  Auditing and Assurance Services 9/e,  Arens/Elder/Beasley 9 - 1 Materiality and Risk Chapter 9  ©2003 Prentice Hall Business Publishing,  Auditing and Assurance Services 9/e,  Arens/Elder/Beasley 9 - 2 Learning Objective 1 Apply the concept of materiality to the audit.  ©2003 Prentice Hall Business Publishing,  Auditing and Assurance Services 9/e,  Arens/Elder/Beasley 9 - 3 Materiality The auditor’s responsibility is to  determine whether financial statements are materially misstated. If there is a material misstatement, the auditor will bring it to the client’s  attention so that a correction can be made.  ©2003 Prentice Hall Business Publishing,  Auditing and Assurance Services 9/e,  Arens/Elder/Beasley 9 - 4 Steps in Applying Materiality Step 1 Set preliminary  judgment about materiality. Step 2 Allocate preliminary  judgment about materiality to segments. Planning extent of tests  ©2003 Prentice Hall Business Publishing,  Auditing and Assurance Services 9/e,  Arens/Elder/Beasley 9 - 5 Steps in Applying Materiality Step 3 Estimate total misstatement in segment. Step 4 Estimate the combined misstatement. Evaluating results Compare combined estimate with judgment about materiality. Step 5
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