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Hi. Could anyone please let me know how to find / calculate the “preliminary materiality proposed”? Everytime when I go through answer for audit risk, under materiality there will always answer like this example “preliminary materiality proposed of $3M” , but I couldn’t find / calculate where to get the figure. Please help T.T
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I don’t know where you are looking but if you look at the Specimen exam and practice exams, materiality should always have a justification. E.g. from the specimen exam:
Benchmarks
Using profit before tax or operating profit as a suggested benchmark provides the following range:
5–10% of profit before tax = range of $4·05 million – $8·1 million.
5–10% of operating profit = range of $7·25 million – $14·5 million.
These benchmarks are only a starting point for determining materiality and professional judgement will need to be applied in determining a final level to be used during the course of the audit. As this is a new client and therefore an initial audit engagement, due to the increased detection risk, materiality should be set at the lower level of the range at $4 million
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