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Compute the Overall Materiality and Tolerable Misstatement

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Reference no: EM132685505

Question - You are the auditor of a client in a retail industry. In the 1st and 2nd quarter of the year under audit, they reported 1.5M and 2M respectively, in their Income before Taxes. Based on your experience, there is a much higher demand for their product in the 3rd and 4th quarter. You noted the following Income before Taxes information last year:

1stQtr - 600K

2ndQtr - 950K

3rdQtr - 1.14M

4thQtr - 1.254M

Assume that you use 5% of Income before Taxes as Overall Materiality, and determined that no qualitative factors are relevant that will have an effect on the initial 5% assessment. Assume as well that the Tolerable misstatement is 50% of the Overall Materiality.

Required - Based on the available information, compute the Overall Materiality and Tolerable Misstatement. Show your solutions.

Reference no: EM132685505

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