Materiality is ultimately a matter of professional judgment. However, during the planning process auditors make a calculation of preliminary materiality based on a benchmark or rule of thumb.

Required: 

FastFix is an online retail company that sells a variety of products including groceries, clothing, toys, and home decor and promises delivery within 5 days. The table below has select financial data from 2022, 2023, and 2024. Using this information, calculate overall preliminary materiality using the following rules of thumb:

• 5% of profit before tax 

• 1/2% of revenues 

• 1% of total assets

Which of these do you think is most appropriate to use for FastFix for 2022, 2023, and 2024, and why?

Transcribed Image Text:

FastFix Select Financial Data (in millions) Net revenues Profit before taxes Total assets 2022 121,776 1,682 98,325 2023 160,223 3,548 101,524 2024 285,052 12,754 157,221