Which of the Following Is Not a Qualitative Factor That

question 5

Multiple Choice

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

• A)Potential for fraud.
• B)The entity is close to violating loan covenants.
• C)Firm policy sets materiality at 5 per cent of pre-tax income.
• D)A small misstatement that would interrupt an earnings trend.

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Definitions:

Future Values

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today, accounting for interest or capital gains.

Simple Interest

Interest computed solely on the initial sum of money, or on the remaining balance of the principal that is not yet paid off.

Compounded Annually

Refers to the process where interest is calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Interest

The charge for borrowing money, typically expressed as an annual percentage rate, or the income earned from lending funds.