A Misstatement in the Financial Statements Can Be Considered Material

question 37

Multiple Choice

A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of

• A) the PCAOB.
• B) a reasonable user of the financial statements.
• C) an accountant.
• D) the SEC.

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Definitions:

Product Costs

Costs that are incurred to create a product that includes direct materials, direct labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to the production process and are expensed in the period they are incurred.

Variable Cost

Expenses that change in proportion to the activity of a business such as costs of goods sold, raw materials, and labor expenses.

Fixed Manufacturing Cost

Costs that remain constant regardless of the level of production, such as rent, salaries, and maintenance expenses.