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Suppose that you are the auditor of a major retail client whohas reported the...

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Accounting

Suppose that you are the auditor of a major retail client whohas reported the following income before taxes (IBT) for the firsttwo quarters of the year:

1st quarter = $1,200,000

2nd quarter = $1,500,000

You are in the process of establishing overall materiality forthe client. Based on prior years, the client has a 10% decline inIBT from the 2nd quarter to the 3rd quarter. You also know IBT inthe 4th quarter historically increases by 25% over the 3rdquarter.

Determine the amount of overall materiality for the audit basedon these preliminary amounts.

Answer & Explanation Solved by verified expert
4.0 Ratings (572 Votes)
Calculate the amount of pre tax income as provided below Particulars Calculations Amount Income before taxesIBT for 1st quarter Given 1200000 Income before taxesIBT for 2nd quarter Given 1500000 Expected IBT for 3rd quarter 15000001500000 x 10 1350000 Expected IBT for 4th quarter 1350000 x    See Answer
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In: AccountingSuppose that you are the auditor of a major retail client whohas reported the following...Suppose that you are the auditor of a major retail client whohas reported the following income before taxes (IBT) for the firsttwo quarters of the year:1st quarter = $1,200,0002nd quarter = $1,500,000You are in the process of establishing overall materiality forthe client. Based on prior years, the client has a 10% decline inIBT from the 2nd quarter to the 3rd quarter. You also know IBT inthe 4th quarter historically increases by 25% over the 3rdquarter.Determine the amount of overall materiality for the audit basedon these preliminary amounts.

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