Best Way Leasing Ltd (BWL) provides lease financing to companies and individuals for various equipment. Leases on commercial signs make up 50% of total leases; computer and telecommunications equipment are 30%; and restaurant equipment makes up most of the remainder. Customers arrange to buy new equipment from equipment dealers, then contact BWL to arrange lease financing. BWL has been in business for over thirty years, and the current president is Jane, daughter of the founders of the business.

BWL owns a small office building downtown. Unused office space is rented out to other commercial tenants. Jane was a classmate of yours in university, and you have kept loosely in touch over the years. This year, she asked your firm (a local firm with five partners) to do the audit. BWL has a small loan that is used to cover ups and downs in working capital. The company has two salespeople. Most loans are received from stores throughout the city with whom BWL has standing agreements. If customers require financing, they fill in an application and fax it to BWL for approval.

The company has been profitable for many years. There are no extraordinary items in the current year's financial statements.

Selected financial information is as follows:

Current assets $ 9 910 000

Long term assets $46 500 000

Short term liabilities $30 700 000

Shareholders' equity $25 710 000

Revenue $10 200 000

Expenses $ 5 600 000

Income before tax (and before bonus) $ 4 600 000

Required:

Which base would you use to calculate materiality? Why? Calculate materiality.

Determine a specific number, and explain why you chose that amount.