You have received some initial figures from your client and plan on coming up with a preliminary materiality. After discussing with your audit team, you have decided to use total assets as the benchmark. The client's total assets are $10,000,000. Additionally, based off the industry in which your client operates, the team has decided to use a rule of thumb of 2% PBT.

 

Indicate how you would calculate preliminary materiality (i.e., write out the equation, no need to solve it)?

 

Discuss situations that would cause your materiality to decrease/increase/not change?