Which of the Following Is Not a Qualitative Factor That

question 20

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 company is close to violating loan covenants.
• C)Firm policy sets materiality at 4% of pretax income.
• D)A small misstatement would interrupt an earnings trend.

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Definitions:

Activity-Based Costing

A costing method that assigns overhead and indirect costs to related products and services based on the activities that generate those costs.

Direct Labor-Hours

The total number of labor hours worked by employees who are directly involved in the manufacturing process.

General Factory

An umbrella term referring to the physical location where manufacturing operations occur, encompassing all areas of production.

Activity Rate

A rate used in activity-based costing to allocate overhead costs to products or services, based on their consumption of activities.