Materiality:

ABC provides financial statements to:

$$Preferred shareholders $-$ there are $2$ preferred shareholders who receive annual dividend payments. Dividends are only paid when net income is greater than $$100,000.$ The dividend is calculated as a $\%$ of $($net income $$ $$100,000).$ As part of the dividend payment calculation, the maximum salary for the $2$ key management members which can be expensed in the calculation of net income above is $$80,000.$

$$ The bank $-$ ABC has an operating line of credit with a local bank. To date they have never drawn down the maximum on the line of credit. ABC also has a strong credit history with the bank.

ABC's $2023$ draft financial statements showed the following balances:

Total customer revenues $$450,000$

Government grant revenue $$25,000($note $1)$

Payment of environmental penalty $$5,000($note $2)$

Salary of the $2$ key management members $$200,000($note $3)$

Net income before tax $$135,000$

Total assets $$1,200,000$

Note $1$: this was a one$-$time grant to subsidize the hiring of some part$-$time students.

Note $2$: this was a payment for disposal of waste which was found to have environmental toxins. Although the company takes multiple steps to meet all regulations, sometimes unexpected penalties occur.

Note $3$: the amount is made up of salary of $$160,000$ plus discretionary bonus of $$40,000.$Audit A Audit