Question

An approach that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting misstatements during the current year (and not considering any unadjusted previous year misstatements) is referred to as the:

A. Evaluation materiality approach.
B. Iron curtain approach.
C. Projected misstatement approach.
D. Rollover approach.

Answer 1

The correct answer to the student's question is the rollover approach, which focuses on current period misstatements without regard to previous unadjusted misstatements.

Step-by-step explanation:

The method that quantifies the total likely misstatement as of the current year-end based solely on the effects of correcting misstatements in the current year without considering any unadjusted misstatements from previous years is known as the rollover approach. This approach focuses on the income statement and the impact of misstatements on the current period's income statement figures.

It contrasts with the iron curtain approach, which considers the cumulative effect of correcting all misstatements up to the current year-end balance sheet, including those originating from earlier periods.