Question: This question can be found in the McGraw-Hill Auditing & Assurance Services 9th Edition book, Exercise & Problems 3.59. Any help on this question would
This question can be found in the McGraw-Hill Auditing & Assurance Services 9th Edition book, Exercise & Problems 3.59. Any help on this question would be greatly appreciated.
Materiality is ultimately a matter of professional judgment. However, during the planning process auditors make a calculation of preliminary materiality based on a benchmark or rule of thumb.
Required:
FastFix is an online retail company that sells a variety of products including groceries, clothing, toys, and home decor and promises delivery within 5 days. The table below has select financial data from 2022, 2023, and 2024.
FastFix Select Financial Data (in millions)
| 2022 | 2023 | 2024 | |
|---|---|---|---|
| Net revenues | $ 121,776 | $ 160,223 | $ 285,052 |
| Profit before taxes | $ 1,682 | $ 3,548 | $ 12,754 |
| Total assets | $ 98,325 | $ 101,524 | $ 157,221 |
a) Using this information, calculate overall preliminary materiality for 2022, 2023, and 2024 using each of the rules of thumb below:
Note: Enter your answers in millions rounded to 1 decimal place.
- 5% of profit before tax
- 1/2% of revenues
- 1% of total assets
|
|
b) Which method for calculating materiality is most common for profit-based companies such as FastFix?
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