Chapter 15 Case 15.3b. Using Excel to Perform Materiality Planning				Student Work Area
PROBLEM		Required: Provide input into cells shaded in yellow in this template. Use mathematical formulas with cell references to the Problem and work areas as indicated.
Mobile Security, Inc. (MSI) has been an audit client of Leo & Lee, LLP for the past 12 years. MSI is a small, publicly traded aviation company based in Cleveland, Ohio, where it manufactures high-tech unmanned aerial vehicles (UAV), also known as drones, and other surveillance and security equipment. MSI's products are primarily used by the military and scientific research institutions, but there is growing demand for UAVs for commercial and recreational use. MSI must go through an extensive bidding process for large government contracts. Because of the sensitive nature of government contracts and military product designs, both the facilities and records of MSI must be highly secured.
	Calculate planning materiality for MSI based on results from the first two quarters and estimates for the last two quarters.
			Pre-Tax Income		Materiality %		Planning Materiality
		First quarter pre-tax income			5%
The auditors have decided on planning materiality of 5% of pre-tax income. MSI's fiscal year-end is June 30. The auditors are nearing the final wrap-up stages of the audit for the year ended June 30, 2026. The following table shows final financial information for all four quarters of fiscal year end June 30, 2026.
		Second quarter pre-tax income			5%
		Third quarter pre-tax income estimate			5%
	Item	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter				Fourth quarter pre-tax income estimate			5%
	Total assets	$ 96,000,000	$ 92,000,000	$ 93,000,000	$ 89,000,000
	Total revenues	33,000,000	31,000,000	28,000,000	22,000,000				Estimate of planning materiality
	Pretax income	3,200,000	2,790,000	2,240,000	1,570,000