5. Qualitative Materiality illustration An audit client has the following audited and unaudited amounts on its balance sheet: Current assets $500,000 [not audited] and current liabilities $225,000 [audited]. The company has the following debt covenants: current ratio [i.e. current assets divided by current liabilities] must be 2.0 or higher; Working Capital [i.e. Current assets minus Current liabilities] must be $250,000 or higher. Since the current liabilities have already been audited, the auditor is confident that the current liabilities number is proper. What is the proper amount of materiality [tolerable misstatement] that the auditor should consider when auditing current assets? Show all considerations and calculations. There are TWO debt covenants. Consider each separately

Current Ratio Considerations

Working Capital considerations

Final considerations i.e. Which of two is binding? Explain briefly.