Reference no: EM131570735

Question - Materiality MEDIUM Lyon & Associates (Lyon) are the auditors for the year ending 30 June 2015 for Leather Goods Ltd (LGL), a manufacturer of leather accessories. The following financial information was extracted from LGL's 30 June 2015 forecast, updated in the previous month for 'actual year-to-date' results: FORECAST 30 JUNE 2015 $M ACTUAL 31 MAY 2015 $M Revenue 300 260 Total assets 325 280 Net assets 160 145 Profit before income tax expense 23 19 LGL manufactures and sells leather handbags and accessories to retail outlets. Custom-made handbags are also sold via the internet and directly from the retail shop, which is onsite at its warehouse location. During the economic downturn, the leather accessory industry has been very competitive, and consumer confidence has fallen during the past six months. The company has recently restructured its operations to outsource its Australian manufacturing to a new factory in China from May 2015. As auditors of LGL for the past five years, Lyon's experience with the company indicates that their forecasts are generally reliable.

REQUIRED:

(a) Select an appropriate benchmark for determining the preliminary figure for materiality for LGL. Explain your selection.

(b) Identify three factors from the information that will lead to a decrease in preliminary overall materiality. For each factor identified, explain why it will lead to a decrease in preliminary overall materiality.