Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.
A)Using absolute amounts eliminates the problem of varying materiality levels.
B)To fully appreciate an absolute amount, the analyst must consider the size of other accounts of the business.
C)Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses.
D)Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area.

Question

Quizplus · Accepted Answer

Comparing only absolute amounts has drawbacks, however, because materiality levels differ from company to company or even from year to year for a given company. Comparison of absolute numbers for companies of different size is difficult.
It is difficult to judge the materiality of an absolute financial statement amount without considering the size of the company reporting it. Various national economic statistics, such as gross domestic product and the amount spent to replace productive capacity, are derived by combining absolute amounts reported by businesses. Financial statement users with expertise in particular industries might evaluate amounts reported for research and development costs to judge whether a company is spending excessively or conservatively.

Select the Incorrect Statement Regarding the Analysis of Absolute Amounts