Suppose that you are the auditor of a major retail client who has reported the following income before taxes (IBT) for the first two quarters of the year: 1st quarter = $1,200,000 and 2nd quarter = $1.500,000. You are in the process of establishing overall materiality for the client. Based on prior years, the client has a 10 percent decline in IBT from the 2nd quarter to the 3rd quarter. You also know that IBT in the 4th quarter increases by 25 percent over the 3rd quarter. Required: Determine the amount of overall materiality for the audit based on these preliminary amounts.

Suppose that you are the auditor of a major retail client who has reported the following income before taxes (IBT) for the first two quarters of the year: 1st quarter = $1,200,000 and 2nd quarter = $1.500,000. You are in the process of establishing overall materiality for the client. Based on prior years, the client has a 10 percent decline in IBT from the 2nd quarter to the 3rd quarter. You also know that IBT in the 4th quarter increases by 25 percent over the 3rd quarter. Required: Determine the amount of overall materiality for the audit based on these preliminary amounts.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Audit Procedures

Audit Procedures are methods and techniques performed by the auditor to determine the quality of financial information of clients, thereby expressing an opinion on true & fair view of financial statements and entity position. They are identified and applied at the planning stage of audit after determining audit objectives, scope, approach, and risk assessment.

Question

Paragraph
ly
Suppose that you are the auditor of a major retail client who has reported the following income before taxes (IBT) for the first two
quarters of the year: 1st quarter = $1,200,000 and 2nd quarter = $1.500,000. You are in the process of establishing overall
materiality for the client. Based on prior years, the client has a 10 percent decline in IBT from the 2nd quarter to the 3rd quarter.
You also know that IBT in the 4th quarter increases by 25 percent over the 3rd quarter.
Required:
Determine the amount of overall materiality for the audit based on these preliminary amounts.
I=

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