The materiality constraint:
A) is only relevant when preparing annual financial statements as opposed to quarterly statements.
B) is applicable only for low-cost items that cost less than, say, $500.
C) is the only defence for gross negligence by an independent accountant.
D) does not necessarily imply that an immaterial amount can be ignored for accounting purposes.

Question

Quizplus · Accepted Answer

The materiality constraint states that financial information should be reported if it could affect the economic decisions of users. This does not necessarily imply that an immaterial amount can be ignored for accounting purposes. Therefore, option D is the correct answer. Option A and B are incorrect as materiality is relevant for both annual and quarterly financial statements, and it applies to all items regardless of their cost. Option C is also incorrect as materiality cannot be used as a defense for gross negligence.

The Materiality Constraint