In Making Judgements About Materiality at the Account Balance Level

question 1

Multiple Choice

In making judgements about materiality at the account balance level, the auditor must consider the relationship between it and overall materiality. This should lead the auditor to plan the audit to detect misstatements that:

• A) are individually material to the statements taken as a whole.
• B) are individually immaterial to the statements taken as a whole.
• C) bring the cumulative total of known misstatements to the level of materiality established by management.
• D) may be immaterial individually, but may aggregate with misstatements in other accounts to a material level.

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Definitions:

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales.

Cost Of Capital

The rate of return that a business needs to generate from its investments in order to cover the cost of raising funds, either through debt or equity.

Capital Budgeting

The process used by companies to evaluate which major projects or investments should receive funding.

Incremental Cash Flows

The additional operating cash flow that an organization receives from taking on a new project.