This question can be found in the McGraw-Hill Auditing & Assurance Services 9th Edition book, Exercise & Problems 3.59. Any help on this question would be greatly appreciated.

Materiality is ultimately a matter of professional judgment. However, during the planning process auditors make a calculation of preliminary materiality based on a benchmark or rule of thumb.

Required:

FastFix is an online retail company that sells a variety of products including groceries, clothing, toys, and home decor and promises delivery within 5 days. The table below has select financial data from 2022, 2023, and 2024.

FastFix Select Financial Data (in millions)

	2022	2023	2024
Net revenues	$ 121,776	$ 160,223	$ 285,052
Profit before taxes	$ 1,682	$ 3,548	$ 12,754
Total assets	$ 98,325	$ 101,524	$ 157,221

a) Using this information, calculate overall preliminary materiality for 2022, 2023, and 2024 using each of the rules of thumb below:

Note: Enter your answers in millions rounded to 1 decimal place.

• 5% of profit before tax
• 1/2% of revenues
• 1% of total assets

	2022 (in millions)	2023 (in millions)	2024 (in millions)
5% profit before taxes
1/2% of revenues
1% of total assets

b) Which method for calculating materiality is most common for profit-based companies such as FastFix?