Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?
A) Potential for fraud.
B) The entity is close to violating loan covenants.
C) Firm policy sets materiality at five per cent of pre-tax income.
D) A small misstatement would interrupt an earnings trend.

Question

Quizplus · Accepted Answer

Choice C is a quantitative factor, not a qualitative factor, as it is based on a firm policy of setting materiality at a specific percentage of pre-tax income. Qualitative factors include things like the potential for fraud, the impact on stakeholders, and the nature of the misstatement. Choices A, B, and D are all qualitative factors that could impact an auditor's establishment of materiality.

Which of the Following Is Not a Qualitative Factor That