The Five Steps in Applying Materiality Are Listed Below in Random

question 103

Multiple Choice

The five steps in applying materiality are listed below in random order. 1. Estimate the combined misstatement.
2) Estimate the total misstatement in the segment.
3) Set preliminary judgement of materiality.
4) Allocate preliminary judgement of materiality to segments.
5) Compare combined estimate with preliminary judgement about materiality. The correct sequence from start to finish would be:

• A) 1 2 5 4 3.
• B) 3 4 2 1 5.
• C) 4 3 1 5 2.
• D) 5 1 3 2 4.

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Definitions:

Securities Exchange Act

Also known as the Securities Exchange Act of 1934, it regulates the trading of securities in the U.S. and established the Securities and Exchange Commission (SEC).

Financial Statements

are formal records of the financial activities and condition of a business, person, or other entity.

Due Diligence Defense

A legal strategy where the defendant shows that reasonable actions were taken to avoid causing harm, used as a defense in civil litigation and regulatory compliance.

Securities Act of 1933

A federal law enacted to ensure more transparency in financial statements so investors can make informed decisions about investments, and to establish laws against misrepresentation and fraudulent activities in the securities markets.