Which of the Following Statements About Materiality Is Not Correct

question 72

Multiple Choice

Which of the following statements about materiality is not correct?

• A) An item is material if its inclusion or omission would influence or change the judgement of a reasonable person.
• B) The amount involved must make a difference or it should not be disclosed.
• C) Materiality is a matter of both its nature and relative size.
• D) A traditional guideline for auditors is 5 to 10 percent of net earnings.

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Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, indicating profit or loss.

Partners' Capital Statement

A financial statement that shows the changes in each partner’s equity in the business over a specific period of time.

Drawings

Withdrawals of cash or other assets from a business by the owner for personal use.

Capital Statement

A financial statement that outlines the changes in owners' equity over a specific period.