Question

The highest level of materiality exists when?

1) users are likely to make incorrect decisions if they rely on the overall financial statements.
2) there has been a departure from GAAP.
3) amounts are material but do not overshadow the financial statements as a whole.
4) a scope limitation has been imposed.

Answer 1

The highest level of materiality exists when amounts are material but do not overshadow the financial statements as a whole.

Step-by-step explanation:

The highest level of materiality exists when amounts are material but do not overshadow the financial statements as a whole. Materiality refers to the significance or importance of an item or amount in the financial statements. It is determined based on various factors such as the size of the amount, the nature of the item, and the circumstances surrounding it.

When certain amounts are material, but do not have a significant impact on the overall financial statements, the highest level of materiality is reached. This means that these amounts are considered relevant and should be disclosed to users of the financial statements as they may affect their decisions.