Emmas Designs is a for-profit clothing manufacturer. The components of its financial statements are (1) income before taxes = $3.5 million, (2) total assets = $33 million, and (3) total revenues = $95 million. Emmas Designs is considered a moderate-risk audit, but Accounts Receivable is deemed to have a higher risk of misstatement.

a. Determine overall materiality and tolerable misstatement. Justify your decisions.

b. During the course of the audit, Emmas CPA firm detected one misstatement in a key customers Accounts Receivable equal to $90,000. The firm also detected a second misstatement in Cash equal to $10,000. Evaluate the audit findings. Justify your decisions.