You're the senior auditor on a new audit engagement and you're meeting with the manager at your firm tomorrow to discuss the engagement. The manager has asked you to bring along your calculation of planning materiality. The entity is a private company that is financed mainly by debt. The users of the financial statements are the company's owner, one major lender and the bank. Net income is consistently low because the owner takes most of the income as a bonuseach year.Selected financial information:Current assets: $1,967,150Long-term assets: 123.500Current liabilities: 248,000Long term liabilities: 1,700,000Shareholder's equity: 142,650Revenue: 1,180,860Expenses: 1,014,370Net earnings: $117,791
a) Which base would you use to calculate materiality? Why would you choose this base and not another common one? 
b) Calculate materiality. Choose a specific number (rounded to the nearest hundred) and Explain why you chose that amount. 

Answer rating: 100% (QA)

a To calculate materiality I would use the base of total assets This base is usually used for financ... View the full answer