Qualitative factors can affect an auditor's assessment of materiality.Which of the following statements is true?
I.Misstatements that are otherwise immaterial may be material if they affect earnings trends.
II.Misstatements that are otherwise minor may be material if there are possible consequences arising from contractual obligations.
A)I only
B)II only
C)I and II
D)neither I nor II

Question

Quizplus · Accepted Answer

Both statements are true. Materiality is a subjective concept and depends on the overall context of the financial statements. Misstatements that affect earnings trends could mislead investors and impact their decision-making, making them material even if they are otherwise immaterial. Similarly, misstatements that could trigger a breach of a contractual obligation may have a significant impact on the company's financial position and performance, making them material even if they are otherwise minor. Therefore, auditors must consider both quantitative and qualitative factors when assessing materiality.

Qualitative Factors Can Affect an Auditor's Assessment of Materiality