The first step in applying materiality is
A)estimating the misstatement in a segment for each functional cycle.
B)setting a judgment about materiality for the financial statements as a whole.
C)estimating the combined effects of errors.
D)comparing the error estimate with the materiality levels.

Question

Quizplus · Accepted Answer

The first step in applying materiality is setting a judgment about materiality for the financial statements as a whole. This sets a baseline for determining the significance of potential misstatements in the financial statements. After this step, the auditor can estimate the misstatement in a segment for each functional cycle and compare it to the materiality levels set. Finally, the auditor can estimate the combined effects of errors to determine if the misstatements are material in aggregate.

The First Step in Applying Materiality Is