Question

Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes?

1) net income.
2) total assets.
3) working capital.
4) all of the above.

Answer 1

Misstatements in financial reporting are compared against measurement bases such as net income, total assets, and working capital to gauge materiality. These metrics provide context for the significance of a misstatement in a financial statement. Option 4. All of the above.

Step-by-step explanation:

When evaluating misstatements in financial reporting, they must be assessed about a measurement base to determine their materiality.

The commonly accepted measurement bases include net income, total assets, and working capital.

Each of these bases provides a context for determining whether a misstatement significantly affects the financial statements to influence the economic decisions of users.

A bank's balance sheet, as an accounting tool, lists assets and liabilities. Bank capital, or a bank's net worth, is also important and reflects the value of a bank's assets minus its liabilities.

These elements are crucial for assessing a bank's financial health and stability.

Hence, the right answer is option 4. All of the above.