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Suppose that you are the auditor of major retail client who has reported the following income before taxes for the first two quarters of the year 1st quarter = $1,200,000 2nd quarter = $1,500,000

Suppose that you are the auditor of major retail client who has reported the following income before taxes for the first two quarters of the year 1st quarter = $1,200,000 2nd quarter = $1,500,000

FINANCIAL ACCOUNTING
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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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 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% decline in IBT from the 2nd quarter to the 3rd quarter. You also know IBT in the 4th quarter historically increases by 25% over the 3rd quarter. Determine the amount of overall materiality for the audit based on these preliminary amounts.
Transcribed Image Text: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 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% decline in IBT from the 2nd quarter to the 3rd quarter. You also know IBT in the 4th quarter historically increases by 25% over the 3rd quarter. Determine the amount of overall materiality for the audit based on these preliminary amounts.
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