Materiality Practice Test

A nonissuer audit is in the planning stage for a wholesaler with revenue of $200.0 million, income before taxes of $2.0 million, and total assets of $90.0 million. The auditor notes earnings are unusually low this year due to a one-time restructuring charge, and users (owners and lender) primarily evaluate operating performance and cash flows over multiple years. Which factor most significantly affects materiality assessment?

An issuer audit is in the reporting phase. Overall materiality is $4.0 million and performance materiality is $2.5 million; uncorrected misstatements total $3.2 million, including a $600,000 misclassification that does not change net income but affects a key segment measure highlighted in earnings releases. Management refuses to correct any items. How should the auditor evaluate the uncorrected misstatements in relation to materiality?