Question

Misstatements that exceed quantitative materiality thresholds can have large impacts on the judgments of financial statement users. However, even quantitatively small misstatements can be material for qualitative reasons. List three qualitative factors that would suggest that a misstatement is material, even if the magnitude of the misstatement falls below the quantitative materiality thresholds of planning materiality and tolerable misstatement.

Answer 1

Please find below answer:

1. the significance of the misstatement or disclosure relative to know user needs for example:

a] the significance of earnings and earnings per share to public investor.

b] the magnifying effects of a misstatement on the calculation of purchase price in transfer of interest.

c]the effect of misstatement of earnings when contrasted with expectations.

2. The motivation of management with respect to the misstatement, for example indicating of a possible pattern of bias by management when developing and accumulating accounting estimates or (ii) a mistaken precipitated by management continued unwillingness to correct weakness in financial reporting process.

3. The potential effect of misstatement on trends, especially trends in profitability.

4.A mistaken that changes a loss into income vice versa.

5.The potential effect of the misstatement on the company's compliance with loans covenants, other contractual agreements and regulatory provisions.

6.A mistimed that has the effect of increasing management's compensation, for example by satisfying the requirements for the award of bonuses or other forms of incentive compensation.