ACCA FA · Chapter 2 · Question 3 of 10
Which of the following statements about materiality are correct? 1. Materiality is an entity-specific aspect of relevance. 2. The IASB specifies a single percentage threshold that all entities must use to judge materiality. 3. An item may be material because of its nature even if its amount is small.
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 1 and 3 only
Explanation
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions of primary users, so materiality depends on each entity's circumstances (statement 1 is correct). The IASB deliberately does not set a uniform quantitative threshold (statement 2 is incorrect). Some items, such as related party transactions or directors' remuneration, can be material because of their nature regardless of size (statement 3 is correct).
More The qualitative characteristics of financial information MCQs
- Q5Financial statements are normally prepared on the assumption that the entity is a going concern. What does this mean?
- Q6Which of the following best describes the principle of substance over form?
- Q7Under the accruals (accrual basis) concept, when are the effects of transactions recognised?
- Q8How does the IASB Conceptual Framework define a liability?
- Q9Which of the following would meet the Conceptual Framework definition of an asset of a trading company?