Difference between revisions of "Pop Quiz Materiality"
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| − | + | '''Answer''': ''Company B'' would have a <u>lower</u> materiality level. | |
| − | + | * It's at a much earlier stage in its organizational life cycle. | |
| − | + | * Therefore its <u>net income</u> is likely much lower so smaller swings in net income would have a proportionately greater impact on decision-making ''(versus Company A.)'' | |
| + | |||
| + | Other considerations in setting a materiality level might include: [Hint: <span style="color: red;">'''F-STARS'''</span>] | ||
| + | |||
| + | : <span style="color: red;">'''F'''</span> '''FINANCIAL''' strength | ||
| + | : <span style="color: ;">'''–'''</span> | ||
| + | : <span style="color: red;">'''S'''</span> '''SIZE''' (of entity) | ||
| + | : <span style="color: red;">'''T'''</span> '''TYPE''' of business | ||
| + | : <span style="color: red;">'''A'''</span> '''ACCESS''' (to capital) | ||
| + | : <span style="color: red;">'''R'''</span> net '''RETENTION''' | ||
| + | : <span style="color: red;">'''S'''</span> '''STAGE''' (of organization's life cycle) | ||
Latest revision as of 18:49, 12 March 2019
Answer: Company B would have a lower materiality level.
- It's at a much earlier stage in its organizational life cycle.
- Therefore its net income is likely much lower so smaller swings in net income would have a proportionately greater impact on decision-making (versus Company A.)
Other considerations in setting a materiality level might include: [Hint: F-STARS]
- F FINANCIAL strength
- –
- S SIZE (of entity)
- T TYPE of business
- A ACCESS (to capital)
- R net RETENTION
- S STAGE (of organization's life cycle)
