Final answer:
The correct statement about materiality is that misstatements must be compared with a benchmark before determining their materiality level in relation to GAAP.
Step-by-step explanation:
The statement regarding materiality that is correct is the second one: Misstatements must be compared with some benchmark before a decision can be made about the materiality level of the failure of a company to follow GAAP. Materiality involves judgment and the significance of an item or error is considered material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Auditors use guidelines that are approximate and depend on the context of the situation. Misstatements are indeed evaluated against some benchmarks such as a percentage of profits, net assets, or revenue. Furthermore, auditors do consider pervasiveness, which refers to the extent to which a misstatement affects multiple accounts or disclosures and whether it is likely to influence the economic decisions of users.
On the point of combining all unadjusted misstatements, to evaluate the overall materiality, auditors do combine all unadjusted misstatements to determine if the aggregate amount is material to the financial statements as a whole.
The criteria for determining materiality is not necessarily the same for an expected result as it is for an unexpected result, as materiality requires judgment and consideration of both quantitative and qualitative factors.