Which of the following concepts are pervasive in the application of auditing standards?

• A. Historical cost and conservatism
• B. Materiality and audit risk
• C. Consistency and comparability
• D. Accrual and matching

Answer: (B)

Verified step by step guidance

1. Understand the question: The problem is asking which concepts are pervasive in the application of auditing standards. This requires knowledge of auditing principles and their foundational concepts.
2. Review the options provided: The options include 'Historical cost and conservatism,' 'Materiality and audit risk,' 'Consistency and comparability,' and 'Accrual and matching.'
3. Focus on the key concepts in auditing standards: Auditing standards emphasize evaluating the significance of financial information (materiality) and the likelihood of errors or misstatements (audit risk). These are critical for auditors to assess the reliability of financial statements.
4. Eliminate options that are not directly related to auditing standards: For example, 'Historical cost and conservatism' are accounting principles, not auditing standards. Similarly, 'Accrual and matching' pertain to accounting methods, and 'Consistency and comparability' are qualitative characteristics of financial information.
5. Conclude that 'Materiality and audit risk' are the correct concepts as they are central to the application of auditing standards, guiding auditors in their judgment and decision-making processes.