Reference no: EM133117823

Question - You are the lead senior associate on the Beast Mode Bakery audit engagement. The bakery is a local private company with current year sales revenue of $1.5 million dollars. Your firm has audited the bakery for the last five years and has issued a standard unqualified audit opinion in each of those years. Furthermore, the working relationship with company management has been cooperative, and there have been no material audit adjustments to the financials. Your firm performs an audit of the financial statements as a bank requirement stemming from the company's note payable and line of credit. In performing preliminary analytics for the current year audit, no significant or unusual fluctuations were identified, however, you do observe that many of the company's financial ratios are close to being below requirements set forth in debt covenants from the bank loan.

Based on that info, what preliminary materiality percentage is more applicable between 0-5%?