Question #19, part b.
The answer key shows that due to Company A failing BL Indicator test, AA should be questioned by regulators as to why they do not think RMAD exists.
For Company B, the answer key shows that RMAD likely exists b/c carried reserves+materiality standard is within AA's window. Hence, regulators have no reason to question conclusion that RMAD does not exist for Company B.
My question is, could a test taker have used the BL Indicator test to analyze whether RMAD is likely to exist for both Company A and B? Alternatively, could a test taker have used the carried reserves+materiality standard being within AA's window approach for both companies?
Thanks!
Comments
Best practice is to first check carried reserves + materiality standard for RMAD. If that indicates no RMAD, then the next step is to check the Bright Line test. If carried reserves + materiality standard does indicate RMAD, there really is no need to check the Bright Line test because the AA would already be commenting on RMAD.
You could calculate it if you really wanted, but my recommendation would to skip it with the limited amount of time you have on the exam.
Long way of saying, yes, you could check both methods for both companies and probably arrive at the same answer, but you'd be spending more time on the problem than necessary.