Lewis Corporation has a few large accounts receivable that total one million dollars, whereas Clark Corporation has many small accounts receivable that total one million dollars. Misstatement in any one account is more significant for Lewis corporation because of the concept of
A) materiality.
B) audit risk.
C) reasonable assurance.
D) comparative analysis.

Question

Quizplus · Accepted Answer

Materiality is the concept that misstatements or omissions in financial statements are material if they could influence the economic decisions of users. In this case, Lewis Corporation has a few large accounts receivable, which means that any misstatement in any one account would be significant enough to influence economic decisions. Therefore, the concept of materiality applies more to Lewis Corporation than to Clark Corporation.

Lewis Corporation Has a Few Large Accounts Receivable That Total