MNE and Associates used the benchmark of 5% of income (earnings) before income tax and came up with $9.5 million as their planning materiality for Garden, Inc.MNE also determined that planning materiality using a benchmark of 1% total assets resulted in $23 million.How should MNE decide which planning materiality amount to use?
A)Ultimately, the auditors must use their professional judgment to decide on the planning materiality amount, along with qualitative factors in the final assessment.
B)The auditors would use the largest amount in order to detect larger material misstatements.
C)The auditors would use the smaller amount in order to keep with the principle of conservatism.
D)The auditors would average the two amounts because the use of two benchmarks provides greater precision.

Question

Quizplus · Accepted Answer

Ultimately, the auditors must use their professional judgment to decide on the planning materiality amount, along with qualitative factors in the final assessment. While the benchmarks of 5% of income and 1% of total assets are helpful, they are not the only factors that should be considered in determining planning materiality. Auditors must consider factors such as the company's risk profile, complexity, size, and history of misstatements when making their decision. Therefore, the auditor should use their professional judgment to decide which planning materiality amount is appropriate for the specific circumstances of the audit.

MNE and Associates Used the Benchmark of 5% of Income