Quantitative considerations: Because materiality is relative, it is necessary to have bases for establishing whether misstatements are material. A base is a critical item of which users tend to focus while making decisions. The base will vary depending on the nature of the clients business. Typical bases may include net income before taxes, net sales, totals assets and stockholder equity. Percentages typically range from 1%-10% depending on the base.

Base (from previous year) DollarAmount of Base Percentage Range Base x Percentage

Income Before Taxes 448,000 10%44,800 Assets 3,186,000 1%31,860

Stockholders Equity 814,000 1%8,140

How do I come up with the 1% 10% and 1% for assets, income before taxes, and stockholder equity, respectively?