Final answer:
Materiality in auditing is defined as the threshold at which missing or incorrect information may change the economic decisions of users of financial statements. It is not a fixed percentage but rather is determined based on the circumstances of each audit. the correct answer is D) Materiality is the amount at which judgments based on the financial statements may be altered.
Step-by-step explanation:
Materiality in the context of financial statements and auditing can be best described as the threshold above which missing or incorrect information in financial statements is considered to have an impact on the economic decisions of users. Therefore, the correct answer is D) Materiality is the amount at which judgments based on the financial statements may be altered.
The concept of materiality is not reliant on a fixed percentage of assets or a fixed percentage of net income. Rather, it is determined based on the specific circumstances of each entity and what would influence the economic decisions of users. Different companies, transactions, and circumstances may require different considerations of materiality. The auditor's role is to assess materiality in a way that reflects the financial statement users' perspective so that these users can make informed decisions.