Materiality in Financial Accounting: Understanding Its Significance

The Importance of Materiality in Financial Accounting

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Question

Materiality is one of the pervasive concepts in financial accounting. Which of the following statements is true with regard to materiality?

Answers

A. Relevant items are very material.

B. Materiality judgments generally may be made without consideration of the magnitude of the item involved.

C. None of these answers.

D. The nature and magnitude of an item as well as the circumstances in which the judgment has to be made are integral aspects of a materiality judgment.

E. Materiality judgments generally may be based solely on the magnitude of the item.

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Explanations

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A. B. C. D. E.

The basis for a materiality judgment is generally not sufficient unless the nature of the item, the circumstances in which the judgment has to be made, and the magnitude of the item are all considered.

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