Suppose that you are the auditor of a major retail client who
has reported the following income before taxes (IBT) for the first
two quarters of the year: 1st quarter = $1,200,000 and 2nd quarter
= $1,500,000. You are in the process of establishing overall
materiality for the client, who is also a public company. Based on
prior years, the client has a 10% decline in IBT from the 2nd
quarter to the 3rd quarter. You also know that IBT in the 4th
quarter increases by 25% over the 3rd quarter.