Materiality at the Account Balance Level Is Stated in Planning

question 47

Multiple Choice

Materiality at the account balance level is stated in planning an audit because:

• A) some users make decisions based upon individual account balances.
• B) the auditor verifies account balances in reaching an overall conclusion on the fairness of the financial statements.
• C) the opinion on the fairness of the financial statements extends to the individual account balances.
• D) official pronouncements have specified different levels of materiality for various financial statement items.
• E) the opinion on the fairness of the financial statements extends to the individual transactions.

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Definitions:

Cost Method

An accounting method used to value an investment, where the investment is recorded at its acquisition cost without reflecting changes in its market value.

Consolidated Income Statement

A financial statement that summarizes the financial performance of a company and its subsidiaries.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating the efficiency of core operations.

Cost Method

An accounting technique where investments are recorded at their original purchase cost, without adjustment for market changes unless deemed permanently impaired.