Final answer:
The correct interpretation of the statement in the question is that materiality is considered separately for each financial statement by an auditor during the planning phase of an audit to establish a level of significance for potential misstatements.
Step-by-step explanation:
An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. This implies that the auditor must determine a threshold of significance which, when assessing matters of materiality, applies to the entire set of financial statements. The correct option is B) Materiality is considered separately for each financial statement. Hence, the process of determining materiality takes place at the planning stage. It serves as a benchmark for evaluating the impact of misstatements or omissions. The auditor establishes what would be considered a material misstatement for each financial statement (e.g., balance sheet, income statement) given the specific circumstances of the entity being audited.