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

Question

Quizplus · Accepted Answer

Using absolute amounts does not eliminate the problem of varying materiality levels. Materiality is a relative concept and depends on factors such as the size of the business and the significance of the item in question. Therefore, analysts must consider both the absolute and relative significance of amounts reported on financial statements.

Which of the Following Statements Regarding the Analysis of Absolute