Final answer:
In assessing qualitative materiality in financial reporting, factors such as hiding a failure to meet expectations, affecting management compensation, and turning a profit into a reported loss are concerns. However, the concern that the misstatement is less than 5% of pretax income is not typically a deciding factor in qualitative materiality judgments. Therefore, correct option is b.
Step-by-step explanation:
The question relates to the concept of qualitative materiality in accounting and financial reporting. Materiality judgments are aimed at determining the importance of a misstatement or omission in financial statements.
When assessing whether a misstatement is qualitatively material, the following factors are commonly considered:
A misstatement could be considered qualitatively material if it hides a failure to meet analysts' expectations, which could mislead the financial statement users about the performance of the entity.
If a misstatement increases management's compensation, it is typically considered qualitatively material because it affects the integrity of the financial reports and could influence decisions made by users of the statements.
A scenario where a misstatement changes a small amount of profit to a small reported loss can be qualitatively material due to its potential impact on the perception of the financial health of the entity.
However, stating that a misstatement is not material simply because it is less than 5% of pretax income is usually an inappropriate application of the concept, as qualitative factors can often outweigh quantitative thresholds.
Therefore, the option that is not a concern as to whether a misstatement is qualitatively material is option B: The misstatement is less than 5% of pretax income.