You are nearing completion of the 31 December 2015 audit of ABC Wholesalers Ltd. The figures below have been extracted from the final draft financial report.

Operating profit before income tax

Operating profit after income tax

Total revenue

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

Equity

$'000

5 722

3 541

718 635

253 881

216 752

470 633

103 333

132 760

236 093

234 540

During your review of the audit files, you note the following items recorded on the summary of audit differences.

1.ABC Wholesalers has been involved in a long-running dispute with the taxation authorities in relation to the amount of sales tax payable on certain lines of merchandise. The case wasresolved this year in favour of the taxation authorities. The court ruled that ABC Wholesalers, as well as paying the outstanding taxes, must pay a non-tax-deductible fine of $420 000.

2.Sales cut-off at one of ABC Wholesaler's stores was incorrect, resulting in a large sale of inventory made early in January 2015 being recorded in the 31 December 2014 year-end. Thecost price of the inventory sold was $250 000. ABC Wholesalers marks up inventory by40%.

3.Purchases cut-off at the same store was also incorrect, resulting in a large purchase of inventory made in late December not being recorded until January 2015. The invoice price of the inventory purchased was $5 950 000.

You also note that the planning materiality level was set by the audit manager at $200 000.

Required

(a)Consider items 1-3 independently. State whether the amounts involved would be considered material for the purpose of issuing an audit report. Give reasons.

(b)Explain the relevance, if any, of the planning materiality level to your decisions in (a).