You are currently planning the audit of ABC company. You have audited ABC for the previous five years. ABC is a technology company that is currently going through an IPO. Because of its inexperience complying with SOX 404 requirements, ABC still has very poor internal controls overall, although controls for sales are strong and have been found to operate effectively during interim testing. Most of its accounting procedures involve complex accounting and the heavy use of estimates. ABC is frequently featured in the financial press. Pre-tax income for the current year under audit is $10,000,000. ABCs largest and most challenging account balances are sales revenue ($143,000,000) and research and development expense ($25,000,000).

Based on the information above, tolerable misstatement/performance materiality for R&D expense would be:

50% of overall/planning materiality

75% of overall/planning materiality

50% of the R&D account balance

75% of the R&D account balance

Based on the information above, you would follow which overall strategy when testing the revenue account?

Reliance strategy

Substantive strategy

Analytical strategy

Disclaimer strategy