Calculate materiality to be five percent of net income


Net income before taxes at Roger Company is stable, predictable, and representative of its size. Thus, the auditors at Roger Company calculate materiality to be 5 percent of net income before taxes. Net income before taxes at Roger Company for fiscal 2011 is $1,388,500. Determine materiality for the audit of Roger Company's 2011 financial statements. Use ACL to determine if the reported AR account balance, $487,000, is materially different from the detailed files in Rogers_Company_AR table. Define tolerable misstatement as 60 percent of materiality. What might cause differences between the number reported in the financial statements and the details in the file?

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Accounting Basics: Calculate materiality to be five percent of net income
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