Overall Materiality Calculation- Example 1

Use the guidelines for Willis and Adams for the materiality bases and their respective ranges. You have been tasked with determining the overall materiality assessment for your audit client, TechToys for the year-ended 2018. You have begun your planning procedures in July of 2018. The client has provided you with the actual pretax income for the first quarter 2018 ($4 million) and the second quarter 2018 ($10 million). TechToys expects pretax income to remain stable for the third quarter. It also expects an increase of 30% from the third to fourth quarter for the holiday season. This growth is consistent with the prior year pretax income, which has been steadily increase 2-3% each year. Assets at June 30, 2018 are $10 billion and revenues are forecasted to be $200 million for the year. Assets and revenues also remain stable year over year.

In addition, the below lists provides some information regarding you client, ABC Company:

The entity is publicly traded and is regulated entity.

A material audit differences was identified in the prior year.

The technology space for tech gadgets, such as the fitness watch, has begun to decline in the past year.