Question

Calculate materiality for the client, assuming that it is a profit-oriented company and moderate audit risk. Explain why you chose the base you did and why you chose the percentage. You may use guidelines from the textbook or the case study and should refer to the specific guidelines you used in your answer.

	Current Year	Prior Year
Sales/revenue (net)	30,381,954	26,290,518
Expenses	7,263,786	6,519,376
Gross Margin	8,378,660	7,280,887
Pre-tax Income	1,114,873	761,510
Current Assets	18,993,546	16,966,273
Current Liabilities	8,221,991	6,810,164
Total Assets	19,679,541	17,670,625

Answer 1

We set materiality base as net income. Here, materiality base is pre tax income of prior year $7,280,88We have choosen materiality base as net income because the company has a moderate risk and it is most commonly used base.

Here we can take percentage range as 10% because the company has a moderate risk.The higher the risk the lower the percentage range.