Qualitative Factors in Evaluating Uncorrected Misstatements

When evaluating uncorrected misstatements in relation to the specific financial statement captions and disclosures involved and to the financial statements as a whole, you take into account relevant quantitative and qualitative factors.

Which one of the following is an example of a qualitative factor?

A. Comparing the effect of the uncorrected misstatements, individually or in combination with others, on the specific financial statement captions and disclosures involved. B. Comparing the amount of the uncorrected misstatements, individually or in combination with others, with the final materiality level. C. Comparing the amount of the uncorrected misstatements, individually or in combination with others, with the financial statements as a whole. D. Comparing the effect of the uncorrected misstatements, individually or in combination, on debt covenant calculations.

Answer: D. Comparing the effect of the uncorrected misstatements, individually or in combination, on debt covenant calculations.

Qualitative factors consider the nature and potential impact of the misstatements beyond just their monetary value. Assessing the effect on debt covenant calculations is a qualitative factor because it evaluates the potential consequences of the misstatements on the company's financial standing and ability to comply with loan agreements.