Set two preliminary materiality dollar amounts for the ABC audit - one for the balance sheet and one for the income statement. Document how you calculated your materiality amounts and explain why you chose the approach you did. There are many sources of materiality level judgments for audits in websites on the internet. You can select the approach that you like – remember that you need to explain the approach that would be best for ABC. Remember that the materiality level sets the level for transactions that an auditor will look at; below that level the auditor may not look at the transaction unless there is a high risk for that particular type of transaction.