An auditor who uses 7 percent of income before taxes as a basis for overall materiality would be basing judgment on

Question

Quizplus · Accepted Answer

Using a percentage of income before taxes as a basis for overall materiality is an example of basing judgment on relative size. This means that the auditor is considering the size of the item in relation to a benchmark or a reference point (in this case, income before taxes) to determine if it is material or not. Absolute size, nature of the item, and cumulative effects are other factors that may influence the auditor's judgment, but they are not directly related to using a percentage of income before taxes as a basis for overall materiality.

An Auditor Who Uses 7 Percent of Income Before Taxes