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The president of a public corporation recently commented, "Our auditor states that our financial statements present a 'true and fair view' of our financial position and financial performance. challenged him as to how he determined such fairness. He replied that fairness means that the financial statements are not misstated in amounts that would be considered material. "I believe that there is some confusion with this materiality concept, since different users of our financial statements may have different ideas as to what is material. For example, bankers, institutional investors, small investors, and tax assessors all have different perceptions of materiality." Required What are the issues raised by the president? Select all that apply. A. Materiality involves financial statements containing information that is relevant to the firm's managers. Determining materiality is based on how well the auditor knows the firm and its owners as well as any other requirements. O B. Financial statements should be prepared to meet the needs for all of their users. O C. Materiality involves financial statements containing information that is relevant to their users making economic decisions. Determining materiality is based on the auditor's professional judgment, the assessment of the firm's operations, reporting requirements, and users. O D. Since fairness is abstract, auditors must use their knowledge, experience, and judgment to assess whether financial statements present fairly in relation to generally accepted accounting principles. O E. Financial statements should be prepared to best meet the needs of auditors and other banking sector staff.

The president of a public corporation recently commented, "Our auditor states that our financial statements present a 'true and fair view' of our financial position and financial performance. challenged him as to how he determined such fairness. He replied that fairness means that the financial statements are not misstated in amounts that would be considered material. "I believe that there is some confusion with this materiality concept, since different users of our financial statements may have different ideas as to what is material. For example, bankers, institutional investors, small investors, and tax assessors all have different perceptions of materiality." Required What are the issues raised by the president? Select all that apply. A. Materiality involves financial statements containing information that is relevant to the firm's managers. Determining materiality is based on how well the auditor knows the firm and its owners as well as any other requirements. O B. Financial statements should be prepared to meet the needs for all of their users. O C. Materiality involves financial statements containing information that is relevant to their users making economic decisions. Determining materiality is based on the auditor's professional judgment, the assessment of the firm's operations, reporting requirements, and users. O D. Since fairness is abstract, auditors must use their knowledge, experience, and judgment to assess whether financial statements present fairly in relation to generally accepted accounting principles. O E. Financial statements should be prepared to best meet the needs of auditors and other banking sector staff.

Auditing: A Risk Based-Approach (MindTap Course List)
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter15: Audit Reports For Financial Statement Audits
Section: Chapter Questions
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The president of a public corporation recently commented, "Our auditor states that our financial statements present a 'true and fair view' of our financial position and financial performance. I challenged him as to how he determined such fairness. He replied that fairness means that the financial statements are not misstated in amounts that would be considered material. "I believe that there is some confusion with this materiality concept, since different users of our financial statements may have different ideas as to what is material. For example, bankers, institutional investors, small investors, and tax assessors all have different perceptions of materiality." Required What are the issues raised by the president? Select all that apply. O A. Materiality involves financial statements containing information that is relevant to the firm's managers. Determining materiality is based on how well the auditor knows the firm and its owners as well as any other requirements. O B. Financial statements should be prepared to meet the needs for all of their users. O C. Materiality involves financial statements containing information that is relevant to their users making economic decisions. Determining materiality is based on the auditor's professional judgment, the assessment of the firm's operations, reporting requirements, and users. O D. Since fairness is abstract, auditors must use their knowledge, experience, and judgment to assess whether financial statements present fairly in relation to generally accepted accounting principles. O E. Financial statements should be prepared to best meet the needs of auditors and other banking sector staff.
Transcribed Image Text:The president of a public corporation recently commented, "Our auditor states that our financial statements present a 'true and fair view' of our financial position and financial performance. I challenged him as to how he determined such fairness. He replied that fairness means that the financial statements are not misstated in amounts that would be considered material. "I believe that there is some confusion with this materiality concept, since different users of our financial statements may have different ideas as to what is material. For example, bankers, institutional investors, small investors, and tax assessors all have different perceptions of materiality." Required What are the issues raised by the president? Select all that apply. O A. Materiality involves financial statements containing information that is relevant to the firm's managers. Determining materiality is based on how well the auditor knows the firm and its owners as well as any other requirements. O B. Financial statements should be prepared to meet the needs for all of their users. O C. Materiality involves financial statements containing information that is relevant to their users making economic decisions. Determining materiality is based on the auditor's professional judgment, the assessment of the firm's operations, reporting requirements, and users. O D. Since fairness is abstract, auditors must use their knowledge, experience, and judgment to assess whether financial statements present fairly in relation to generally accepted accounting principles. O E. Financial statements should be prepared to best meet the needs of auditors and other banking sector staff.
Public Company Ltd. is a large, publicly held company with shares actively traded on the Toronto Stock Exchange and that has earnings before tax of $300 million per year. The partner in charge of Public Company's external audit has approached you to prepare a memo for her on this matter. The memo should identify and discuss important theoretical and Public Company has spent $45 million in the current vear to improve basic literacy skills of its practical issues that might influence her, as the external auditor, as to whether she is employees (i.e., reading, writing, and arithmetic) to allow the introduction of high-tech, computerized, automated equipment. Without this training, efficient and effective implementation of the new production process is unlikely to occur. Management of Public Company proposes that the entire amount be capitalized and amortized over the next 15 years (the estimated average remaining working life of the trained workers). prepared to accept the Public Company's proposal as appropriate accounting for this $45-million expenditure. If she rejects the proposal, the alternative is to expense the training costs. Requirement Identify important concepts, principles, and ideas that you should incorporate into your memo. Select six points which support the company's proposal to capitalize and amortize the entire amount over the next 15 years. Choose from any drop-down list and then click Check Answer.
Transcribed Image Text:Public Company Ltd. is a large, publicly held company with shares actively traded on the Toronto Stock Exchange and that has earnings before tax of $300 million per year. The partner in charge of Public Company's external audit has approached you to prepare a memo for her on this matter. The memo should identify and discuss important theoretical and Public Company has spent $45 million in the current vear to improve basic literacy skills of its practical issues that might influence her, as the external auditor, as to whether she is employees (i.e., reading, writing, and arithmetic) to allow the introduction of high-tech, computerized, automated equipment. Without this training, efficient and effective implementation of the new production process is unlikely to occur. Management of Public Company proposes that the entire amount be capitalized and amortized over the next 15 years (the estimated average remaining working life of the trained workers). prepared to accept the Public Company's proposal as appropriate accounting for this $45-million expenditure. If she rejects the proposal, the alternative is to expense the training costs. Requirement Identify important concepts, principles, and ideas that you should incorporate into your memo. Select six points which support the company's proposal to capitalize and amortize the entire amount over the next 15 years. Choose from any drop-down list and then click Check Answer.
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