Audit and Assurance services course : Do for Scenario 1 & 2.

3-31 For each of the following scenarios, perform the three steps in the materiality pro- cess: (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 lawn- mowers, tractors, and snowmobiles. The components of its financial statements are (1) income before taxes = $21 million, (2) total assets = $550 million, and (3) total revenues = $775 million. a. Determine overall materiality, and determine tolerable misstatement. Justify your decisions. b. During the course of the audit, Murphy & Johnson's CPA firm detected two mis- statements that aggregated to an overstatement of income of $1.25 million. Evalu- ate the audit findings. Justify your decisions. Scenario 2: Delta Investments provides a group of mutual funds for investors. The components of its financial statements are (1) income before taxes = $40 million, (2) total assets = $4.3 billion, and (3) total revenues = $900 million. a. Determine overall materiality, and determine tolerable misstatement. Justify your decisions. b. During the course of the audit, Delta's CPA firm detected two misstatements that aggregated to an overstatement of income of $5.75 million. Evaluate the audit findings. Justify your decisions. Scenario 3: Swell Computers is a public company that manufactures desktop and laptop com- puters. The components of the financial statements are (1) income before taxes =