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 materiality is a form of relative size, where the auditor considers the size of an item in relation to a benchmark such as income or total assets. Absolute size (A) would involve setting a specific dollar amount as materiality, while nature of the item (C) and cumulative effects (D) are other factors that can be considered in determining materiality but are not specifically related to the use of a percentage benchmark.

An Auditor Who Uses 7 Percent of Income Before Taxes