(Learning Objective 2: Understanding materiality) Infi nia is a company with total assets of $500,000, total revenue of $800,000, gross profi t of $300,000, and net profi t of

$100,000 in its last fi nancial year, 20X5. Which of the following items are likely to be material for Infi nia?

a. There was an error in the calculation of commission payable to employees amounting to $2,000 in 20X4. The additional payments were made in 20X5 but the 20X4 comparatives on the fi nancial statement were not adjusted for this error.

b. Infi nia has erroneously recognized revenue for items that have not yet been shipped to customers at the end of 20X5, amounting to $25,000.

c. Infi nia suffered a major fl ood in one of its largest warehouses in September 20X5.

Infi nia did not recognize or disclose the losses it suffered because it was in the process of making claims to its insurance company. In early 20X6, before the issuance of the annual report, the insurance company paid the claims in full.

d. Infi nia sold an old factory to another company. The buyer was going to demolish the factory and build a hostel on the site. However, the buyer failed to secure permission to build the hostel because the grounds showed higher levels of toxicity than allowed.

The buyer claimed this is due to Infi nia’s failure to meet environmental regulations on disposal of industrial waste in the past. The buyer is now suing Infi nia for damages, expected to be in the millions. Infi nia believes this lawsuit is baseless and would vigorously defend the case in court. It did not mention this lawsuit in its annual report.