Question

When determining materiality, gaas may use benchmarks or professional judgment__

o requires the use of both benchmarks and professional judgment
o requires only benchmarks
o requires only professional judgment.

Answer 1

GAAS requires the use of both benchmarks and professional judgment when determining materiality. The correct answer is option A.

Step-by-step explanation:

When determining materiality, the Generally Accepted Auditing Standards (GAAS) emphasize the necessity of both benchmarks and professional judgment. Materiality is a concept that guides the auditor in deciding which information is significant enough to influence the decisions of an informed user of the financial statements.

Therefore, GAAS does not rely exclusively on one over the other. Instead, auditors are required to use benchmarks as a starting point. Benchmarks can include quantitative measures such as a percentage of net income, revenue, assets, or equity.

However, solely relying on these predetermined benchmarks can be limiting as they may not account for all nuances of a company's financial status or operations. Hence, professional judgment plays a critical role in determining when deviations from these benchmarks are warranted.