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Ana Dinh used 0.5 to 5 percent of gross profit in determining materiality of $70,000...

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Accounting

Ana Dinh used 0.5 to 5 percent of gross profit in determining materiality of $70,000 in her audit of XYZ Inc., a company that builds replacement engines for tractors and combines. She used the $70,000 amount as her planning materiality, identifying account balances and transactions to be tested. She also used materiality as a guide when deciding on the appropriate audit opinion in her report.

Required

a. Provide three other examples of a base (other than 0.5 to 5 percent of gross profit) that an auditor could use in determining materiality in a financial statement audit.

b. Suppose Ana initially reviewed parts inventory account #102641-1 and found that none of the account transactions exceeded $45,000. Does this mean that none of these transactions should be selected for examination, based on her materiality decision of $70,000? Explain your answer.

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