Via internet, you have obtained the financial statements of an international manufacturer of portable telephones. The financial statements can be summarizes as follows (in millions of US-dollar):

Profit before taxes and minority interests:.....................$ 4,933

Current assets: .................................................................$ 23,174

Current liabilities: .............................................................$ 19,657

Total assets: .......................................................................$ 54,602

Total Sales: ........................................................................$ 36,810

Required:

A. Use professional judgment in deciding on the initial judgment about materiality for the basis of net income, current assets, current liabilities and total assets. State materiality in both percentages of the basis and monetary amounts.

B. The company is listed on the Euronext Amsterdam Stock Exchange. During last year’ annual shareholders meeting there was a lot of resistance against the bonuses that were paid out to the executive directors. As a result, a new remuneration package was agreed for the CEO and CFO, including a limitation of the bonuses. The bonus for the CEO and CFO were limited to a maximum of $ 500K. Using the materiality you have determined in sub question A, do you believe you can use this materiality to audit and evaluate any misstatements in the bonuses paid out to the CEO and CFO. For example, if both the CEO and CFO were paid a bonus of $ 515K and only $ 500K is reported, do you believe this misstatement is material?

C. After completing the audit you determine the actual estimate of misstatements in earnings exceeds your preliminary judgment. What should you do?