From a quantitative sense the auditor would consider overall materiality to be $50,000. Further assume that the
Question:
From a quantitative sense the auditor would consider overall materiality to be $50,000. Further assume that the company has existing debt covenants of a current ratio of 2.0 or higher; and, Working capital limit of $210,000 or higher. If either covenant is violated, then the debt could be called immediately, resulting in the company’s bankruptcy. Reported current assets are $420,000 while reported current liabilities are $200,000. Current liabilities have been audited. The auditor is satisfied with the number for current liabilities.
Considering debt covenants as a qualitative materiality factor, at what amount the auditor would likely set materiality for current assets ?
Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley