On pages 279-280 are statements of earnings and financial position for Wexler Industries.

Required
a. Use professional judgment in deciding on the preliminary judgment about materiality for earnings, current assets, current liabilities, and total assets. Your conclusions should be stated in terms of percents and dollars.
b. Assume that you define materiality for this audit as a combined misstatement of earnings from continuing operations before income taxes of 5%. Also assume that you believe there is an equal likelihood of a misstatement of every account in the financial statements, and each misstatement is likely to result in an overstatement of earnings.
Allocate materiality to these financial statements as you consider appropriate.

c. As discussed in part b, net earnings from continuing operations before income taxes was used as a base for calculating materiality for the Wexler Industries audit. Discuss why most auditors use before-tax net earnings instead of after-tax net earnings when calculating materiality based on the income statement.
d. Now, assume that you have decided to allocate 75% of your preliminary judgment to accounts receivable, inventories, and accounts payable because you believe all other accounts have a low inherent and control risk. How does this affect evidence accumulation on the audit?
e. Assume that you complete the audit and conclude that your preliminary judgment about materiality for current assets, current liabilities, and total assets has been met.
The actual estimate of misstatements in earnings exceeds your preliminary judgment.
What should youdo?

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Consolidated Statements of Earnings Wexler Industries (in Thousands) For the 53 Weeks Ended March 30, 2011 For the 52 Weeks Ended March 31, 2010 April 1,2009 Revenue Net sales Other income $8,351,149 59,675 8,410,824 6,601,255 43,186 6,644,441 S5,959,587 52,418 6,012,005 Costs and expenses Cost of sales Marketin 5,197,375 4,005,548 3,675,369 g, general, and administrative expenses 2,590,080 2,119,590 1,828,169 Provision for loss on restructured operations 64,100 141,662 7,993,217 Interest expense 46,737 6,171,875 38,546 5,542,084 Earnings from continuing operations before income taxes 417,607 (196,700) 469,921 (214,100) 472,566 Income taxes Earnings from continuing Provision for loss on (217200) operations 220,907 255,366 255,821 discontinued operations, net of income taxes (20,700) 200,207 Net earnings 255,366 S 255,821 Consolidated Statements of Financial Position Wexler Industries (in Thousands) March 30, 2011 March 31, 2010 Assets Current assets Cash Temporary investments, including time deposits 39,683 37566 of $65,361 in 2011 and $181,589 in 2010 (at cost, which approximates market) and $17,616 in 2010 Finished product 123,421 271,639 Receivables, less allowances of $16,808 in 2011 899,752 759,001 Inventories 680,974 443,175 1,124,149 9,633 57,468 2,254,106 550,407 353,795 904,202 10,468 35,911 2,018,787 Raw materials and supplies Deferred income tax benefits Prepaid expenses Current assets Land, buildings, and equipment at cost, less accumulated depreciation 1,393,902 1,004,455 Investments in affiliated companies and sundry assets 112,938 99,791 $3,860,737 83,455 23,145 S3,129,842 Goodwill and other intangible assets Total Liabilities and Stockholders' Equity Current liabilities Notes payable Current portion of long-term debt Accounts and drafts payable Accrued salaries, wages, and vacations Accrued income taxes Other accrued liabilities Current liabilities Long-term debt Other noncurrent liabilities Deferred income taxes Stockholders' equity Common stock issued, 51,017,755 shares March 30, 2011 March 31, 2010 S 113,411 12,336 380,395 63,557 64,594 359,511 112,200 76,479 321,871 1,214,893 730,987 146,687 142,344 269,672 928,522 390,687 80,586 119,715 in 2011 and 50,992,41o in 2010 Additional paid-in capital Cumulative foreign currency translation adjustment Retained eamings Common stock held in treasury, at cost 1,566,598 shares Stockholders' equity 51,018 149,177 (76,572) 1,554,170 (51,967) 1,625,826 3,860,737 50,992 148,584 1,462,723 (51,967) 1,610,332 $3,129,842 Total