The Concept of Materiality Would Be Least Important to an Auditor

question 684

Multiple Choice

The concept of materiality would be least important to an auditor when considering the:

• A) Adequacy of disclosure of a client's illegal act.
• B) Discovery of weaknesses in a client's internal control.
• C) Effects of a direct financial interest in the client on the CPA's independence.
• D) Decision whether to use positive or negative confirmations of accounts receivable.

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Definitions:

Dividend Payout Ratio

The fraction of net income a firm pays to its shareholders in dividends, represented as a percentage of the company's total earnings.

Retained Earnings

Retained earnings are the portion of a company's net profits that are kept within the company instead of being paid out to the shareholders as dividends. This reinvestment is often used for business expansion or to pay off debt.

External Financing Need

The amount of funding required by a firm to cover investments and growth not financed by internal cash flows.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health and the ability to fund day-to-day operations.