Handbags for Hospice is a not for profit organization that operates in the Halifax area, where their focus is on raising money in support of the local Hospice. They receive donations (handbags) from local charitable individuals, market the handbag and sell the handbag to whomever is interested. The cash received from the sale of the donated handbag is then donated to the Halifax Hospice. This organization is a subsidiary of the Halifax Hospice and the Board of Directors at the Hospice want to have an audit conducted over the not for profit organization to ensure that the donations received are being accounted for appropriately, therefore, they have hired you, a public accountant, to conduct the audit. For the past year of operations, you have been provided with the following details:

Revenue (donations): $500,000

Expenses: $50,000

Net Income (Loss) before Taxes: $450,000

Total Assets: $75,000

Shareholders Equity: $45,000

Question:

identify what the auditor should base materiality on and your reasoning for selecting the base. Additionally, discuss the range that the auditor would apply to the base in selecting their materiality threshold, and what percentage you would recommend be used.