When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is a(n)
A) understatement of inventory.
B) understatement of retained earnings caused by a miscalculation of dividends payable.
C) misclassification of notes payable as a long-term liability when it should be current.
D) misclassification of salary expense as a selling expense.

Question

Quizplus · Accepted Answer

An understatement of inventory affects multiple accounts and financial statements, such as cost of goods sold, gross margin, and the balance sheet. This misstatement is considered the most pervasive because it affects several accounts and financial statements. The other examples are more limited in their impact.

When Comparing Misstatements with a Measurement Base, the Auditor Must