3-31 scenario 3

L' LO 3-11, [ 3-12 3-31 For each of the following scenarios, perform the three steps in the materiality process: (1 ) determine overall materiality, (2) determine tolerable misstatement, and (3) evaluate the audit findings. Scenario 1: Murphy & Johnson is a privately owned manufacturer of small motors for lawnmowers, tractors, and 2) total aluate tements Justify your decisions. Scenario 3: Swell Computers is a public company that manufactures desktop and laptop computers. The components of the financial statements are (1) income before taxes = $500,000, (2) total assets - $2.2 billion, and (3) total revenues = $7 billion. a. Determine overall materiality and tolerable misstatement. Justify your decisions. b. During the course of the audit, Swell's CPA firm detected one misstatement that resulted in an overstatement of income by $1.5 million. Evaluate the audit findings. Justify your decisions