Materiality is relative. As such:
A) the amount of stockholders' equity is used as a base.
B) the type of account and its related financial statement plays an important role in materiality.
C) net income is more critical than total revenues or total expenses.
D) materiality threshold values should be increased where management barely qualifies for bonuses and other short-term compensation.

Question

Quizplus · Accepted Answer

Materiality is relative to the type of account and its related financial statement. A small balance in a key account on the balance sheet may be material, while the same small balance in a different account may not be material. Similarly, a small expense in the income statement may be immaterial if it does not affect the overall profitability of the company. Therefore, the type of account and its related financial statement play an important role in determining materiality.

Materiality Is Relative. as Such