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a) Looking at Exhibit 1 it says that “the magnitude and nature of financial statement misstatements or omissions will not have the same influence on all financial statement users” (p.11). With that it is clear why different materiality bases are considered because a misstatement on one account on the financial statement may be of more importance to one particular type of user while or the other it is irrelevant.

b) An example given at the bottom of Exhibit 1 explains why it is important to have different thresholds for different audit engagements. “If a client is close to violating the minimum current ratio requirement for a loan agreement, a smaller planning materiality amount should be used for current assets and liabilities. Conversely, if the client is substantially above the minimum current ratio requirement for a loan agreement, it would be reasonable to use a higher planning materiality amount for current assets and current liabilities” (p.11). This makes sense because it is unfair to audit a small company under the same materiality thresholds as one would do with a significantly large company.

c) Once again looking at Exhibit 1 on page 11, the very last paragraph on that page states why it is important to generally use the smallest threshold for planning purposes. It is because the smallest amount provides reasonable assurance that the financial statements, takes as a whole, are not materially misstated for any user. It is to be conservative with discrepancies.
d) On page 12, Exhibit 1, it explains performance materiality. With performance materiality one considers the individual financial statement accounts. Although this is not an example of fraud a manager at a department can purposefully reject projects that would result in a lower return of investment for their department but could be of benefit to the company as a whole (goal