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 5 per cent of pre-tax income.
D)A small misstatement that would interrupt an earnings trend.

Question

Quizplus · Accepted Answer

The firm policy of setting materiality at a specific percentage of pre-tax income is a quantitative factor and not a qualitative factor. The other options (potential for fraud, violation of loan covenants, interruption of earnings trend) are all qualitative factors that could affect an auditor's determination of materiality.

Which of the Following Is Not a Qualitative Factor That