Choice "c" is correct. The auditor would most likely use the entity's financial statements of the prior
year in the preliminary determination of materiality. The prior year financial statements would be a
good starting point in estimating the current year's expected results, especially for a continuing
client.
Choice "a" is incorrect. The assessment of control risk affects the design of audit procedures but is
not relevant in determining materiality.
Choice "b" is incorrect. The anticipated sample size for planned substantive tests is set after the
preliminary materiality level is determined.
Choice "d" is incorrect. Management assertions embodied in the financial statements have little
relationship to materiality.
