DietWeb, Inc.
BALANCE SHEET
December 31, 20X8 and 20X7
(in thousands)
	20X8	20X7
Assets
Current assets
Cash and cash equivalents	$3,019	$1,050
Trade receivables	485	450
Prepaid advertising expenses	59	609
Prepaid expenses and other current assets	175	230
Total current assets	3,738	2,339
Fixed assets, net	3,321	3,926
Total assets	$7,059	$6,265
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$1,070	$ 909
Current maturities of notes payable	42	316
Deferred revenue	1,973	1,396
Other current liabilities	171	12
Total current liabilities	3,256	2,633
Long-term debt, less current maturity	34	176
Accrued liabilities	792	690
Deferred tax liability	15	145
Total liabilities	4,097	3,644
Shareholders' equity
Common stock	6,040	4,854
Retained earnings	(3,078)	(2,233)
Total shareholders' equity	2,962	2,621
Total liabilities plus shareholders' equity	$7,059	$6,265

DietWeb, Inc.
INCOME STATEMENT
Two Years Ended December 31, 20X8 and 20X7
(in thousands)
	20X8	20X7
Revenue	$19,166	$14,814
Costs and expenses
Cost of revenue	2,326	1,528
Product development	725	653
Sales and marketing	13,903	8,710
General and administrative	2,531	2,575
Interest Expense	13	22
Depreciation and amortization	629	661
Impairment of intangible assets	35	--
Total costs and expenses	20,162	14,149
Net income before taxes	(970)	665
Income tax benefit	129	125
Net income (loss)	$ (841)	$ 790

DietWeb, Inc.
STATEMENT OF CASH FLOWS
Year Ended December 31, 20X8
	20X8	20X7
Cash flows from operations
Net income (loss)	$(841)	790
Adjustments to net income
Depreciation	629	660
Increase in receivables	(35)	(47)
Decrease (Increase) in prepaid advertising	550	(650)
Decrease in other current assets	55	74
Increase (Decrease) in accounts payable	161	(540)
Increase in accrued liabilities	102	43
Increase (Decrease) in deferred revenue	432	(665)
Increase in common stock issued	1,186	--
Increase in other current liabilities	159	43
Net cash provided (used) by operations	2,372	(292)
Cash flows from operations
Purchase of property and equipment	(320)	2,016
Cash flows from financing activities
New debt	613	40
Debt payments	(718)	(918)
Net cash provided (used) by financing activities	(105)	(878)
Net increase in cash and cash equivalents	$1,947	846
Cash and equivalents at beginning of year	$1,072	204
Cash and equivalents at end of year	$3,019	1050

Note that the engagement team wants to be efficient with their audit and wanted to do perform a reasonableness analytic to determine some of the balances. Marilyn Terrill is the senior auditor for the audit. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry. Overall Materiality $500K Tolerable misstatement $375K, and deminimis $38K, note materiality was based on total revenue.

For questions below assume you dont know the actual number for 20X8, and estimate what you would have expected it to be based on the trend information provided, and then compare the estimate you come up with to the actual information above. Determine whether the difference between your estimate and the actual results is material and would require additional work. (Focus on whether the dollar amount of the difference is above a materiality level decided above.) For each question below answer the following questions:

(a)Show your calculation, and the formula you used (ex: Sales/Accounts receivable= 111/222=.5),

(b)your answer (ex: .5 per above)

(c) compare your answer to materiality threshold determined (based on your Overall Materiality $500K Tolerable misstatement $375K, and deminimis $38K, note materiality was based on total revenue)

(c)if any differences noted- determine whether they are material or not (based on your answer to question 1 above), and

(d)finally make a conclusion about whether you believe this account is misstated or appears reasonable.