The manager of the audit team of Ben Lang Co. (a listed entity) has determined planning materiality (PM) is 5% of pretax income. In documenting PM, which of the following items is required to be included in the workpapers?
Comparison of PM determined this period vs. prior period
Our understanding of what is material to the users of the financial statements
The amount we determined for PM for the last 3 audits
Our rationale of why we selected pretax income as the PM measurement basis
In documenting planning materiality for Ben Lang Co., the audit team manager should include their rationale for selecting pretax income as the measurement basis. This explanation helps to demonstrate the auditor's professional judgment in setting materiality levels and ensures that the choice is appropriately justified. Comparing the current period's PM with the prior period or the amounts from the last three audits might also be informative but is not specifically required to document PM. The understanding of what is material to the users of the financial statements is an important aspect of determining materiality, but it is typically documented separately in the audit process, rather than directly in the context of PM calculation.
