Which of the Following Is a Correct Statement Regarding Materiality

question 78

Multiple Choice

Which of the following is a correct statement regarding materiality?

• A) There are well-defined guidelines that enable auditors to determine if something is material.
• B) Misstatements must be compared with some benchmark before a decision can be made about the materiality level of the failure of a company to follow GAAP.
• C) Pervasiveness is not considered when comparing potential misstatements with a base or benchmark.
• D) To evaluate overall materiality, the auditor does not combine all unadjusted misstatements.

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Definitions:

Shares Outstanding

Shares outstanding refer to all shares currently owned by shareholders, including restricted shares owned by company insiders and share blocks held by institutional investors.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and gives holders voting rights and a share in the company's profits via dividends.

Paid-In Capital

Funds that shareholders contribute to a company in exchange for equity, beyond the par value of the shares.

Par Value

The face value of a stock or bond as stated by the issuing company, which does not necessarily reflect its market value.