Question

When evaluating the impact of misstatements on the financial statements, auditors must use both the rollover and iron curtain approaches. Regarding these approaches, which of the following statements is correct:

Group of answer choices:

a.The iron curtain approach quantifies the impact of current year and prior misstatements on the balance sheet.

b.The rollover approach quantifies the impact of current year misstatements on the balance sheet.

c.The iron curtain approach quantifies the impact of current year misstatements on the income statement.

d.The rollover approach quantifies the impact of current year and prior year misstatements on the balance sheet.

Answer 1

The correct answer for the question is Option A - The iron curtain approach quantifies the impact of current year and prior misstatements on the balance sheet. The iron curtain approach measures the cumulative effect of the misstatement on the balance sheet in order to assess the impact of the misstatement. As such, this is the correct answer.

Option B is incorrect. The rollover approach quantifies the impact of current year misstatements on the income statement and hence is not correct.

Option C is incorrect. The iron curtain approach quantifies the impact of current year and prior year misstatements on the balance sheet and not the income statement. This option is incorrect.

Option D is incorrect. The rollover approach assesses the impact of the misstatement in the income statement and not the balance sheet. This option is incorrect.