What is meant by using benchmarks for setting a preliminary judgment about$$ materiality? How will those benchmarks differ for the audit of a manufacturing company and a government unit such as a school$$ district?

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Part $1$

What is meant by using benchmarks for setting a preliminary judgment about$$ materiality?

A$.$

Because materiality is relative rather than$$ absolute$,$ it is necessary to have benchmarks for establishing whether misstatements are material.

B$.$

Benchmarks are necessary because a misstatement of a given magnitude might be material for a small$$ company, whereas the same dollar misstatement could be immaterial for a large one. This makes it impossible to establish$$ dollar$-$value guidelines for a preliminary judgment about materiality that are applicable to all audit clients.

C$.$

Net income before taxes is the only primary benchmark that can used for deciding what is material for$$ profit$-$oriented businesses because it is regarded as a critical item of information for users.

D$.$

Net income before taxes is the only primary benchmark that can used for deciding what is material for$$ profit$-$oriented businesses because materiality is relative rather than absolute$.$