When Comparing Misstatements with a Measurement Base, the Auditor Must

question 122

Multiple Choice

When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is a(n)

• A) understatement of inventory.
• B) understatement of retained earnings caused by a miscalculation of dividends payable.
• C) misclassification of notes payable as a long-term liability when it should be current.
• D) misclassification of salary expense as a selling expense.

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Definitions:

Double Declining-Balance Method

An accelerated depreciation method that computes an asset's depreciation at double the rate of the straight-line method over its useful life.

Straight-Line Method

A method of depreciation that allocates an equal amount of the cost of an asset over its useful life.

Depreciation Expense

The allocated amount of an asset's cost charged to expense over time, reflecting the loss in value as the asset is used in operations.

Straight-Line Depreciation Rate

A method of calculating depreciation of an asset, distributing its cost evenly across its useful life.