ExpertMedium1 markMultiple Choice
CPA · Question 24 · Area 2: Risk Assessment
When planning an audit, the auditor should consider the concept of 'materiality' for the financial statements as a whole. Which of the following is the primary benchmark generally used for a profit-oriented entity?
When planning an audit, the auditor should consider the concept of 'materiality' for the financial statements as a whole. Which of the following is the primary benchmark generally used for a profit-oriented entity?
Answer options:
A.
Total assets.
B.
Total revenue.
C.
Income before taxes.
D.
Retained earnings.
How to approach this question
Identify the primary user focus for a for-profit company (Earnings).
Full Answer
C.Income before taxes.✓ Correct
Income before taxes.
For profit-oriented entities, income before taxes (continuing operations) is generally considered the most relevant benchmark for users of financial statements.
Common mistakes
Selecting Revenue or Assets (which are secondary or industry-specific benchmarks).
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