Statements of earnings and financial position for Prairie Stores Corporation are shown on the next page.

REQUIRED
a. Use professional judgment in determining materiality based on revenue, net income before taxes, total assets, and shareholders€™ equity. Your conclusions should be stated in terms of percentages and dollars.
b. Assume you complete the audit and conclude that financial statement misstatements exceed materiality. What should you do?

c. As discussed in part (b), likely net earnings from continuing operations before income taxes were used as a base for materiality when completing the audit. Discuss why most auditors use before-tax net earnings instead of after tax net earnings when calculating materiality based on the income statement.

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Statement of Earnings Prairie Stores Corporation For the 52 Weeks Ended March 30, 2012 April 1, 2011 April 1, 2010 Revenue $5,959,5817 Net sales Other income $8,351,149 59,675 $6,601,255 43,186 6,644,441 52,418 6,012,005 8,410,824 Costs and expenses 5,197,375 2,590,080 64,100 141,662 7,993,217 417,607 196,700 220,907 4,005,548 2,119,590 3,675,369 1,828,169 Cost of sales Marketing, general, and administrative expenses Provision for loss on restructured operations Interest expense 46,737 6,171,875 472,566 217,200 255,366 38,546 5,542,084 469,921 214,100 255,821 Eamings from continuing operations before income taxes Income taxes Eanings from continuing operations Provision for loss on discontinued operations, net of income taxes Net earnings 20,700 $200,207 $255,366 $255,821 Statement of Financial Position Prairie Stores Corporation Assets March 30, 2012 April 1, 2011 Current assets Cash Temporary investments (at cost, which approximates market) Receivables, less allowances of $16,808 in 2012 and $39,683 123,421 $37,566 271,639 $17,616 in 2011 899,752 759,001 Inventories Finished product Raw materials and supplies 680,974 443,175 550,407 353,795 1,124,149 9,633 57,468 2,254,106 1,393,902 112,938 99,791 $3,860,737 904,202 10,468 35,911 2,018,787 1,004,455 83,455 23,145 $3,129,842 Deferred income tax benefits Prepaid expenses Total current assets Land, buildings, equipment at cost, less accumulated amortization Investments in affiliated companies and sundry assets Goodwill and other intangible assets Total assets Liabilities and Shareholders' Equity Current liabilities Notes payable Current portion of long-term debt Accounts and drafts payable Accrued salaries, wages, and vacations Accrued income taxes Other accrued liabilities including goods and services tax $280,238 64,594 359,511 112,200 76,479 321,871 1,214,893 730,987 146,687 142,344 2,234,911 $113,411 12,336 380,395 63,557 89,151 269,672 928,522 390,687 80,586 119,715 1,519,510 Current liabilities Long term debt Other noncurrent liabilities Accrued income tax liability Total liabilities Shareholders' equity Common stock issued, 51,017 shares in 2012 200,195 1,425,631 199,576 1,410,756 and 50,992 in 2011 Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $3,860,737 $3,129,842