Delta Investments provides a group of mutual funds for investors. The components of its financial statements are (1) income before taxes = $40 million, (2) total assets = $4.3 billion, and (3) total revenues = $900 million. Delta Investments' CPA firm uses the percentage applicable on total (net) assets for determining overall materiality.

a. Determine overall materiality, and determine tolerable misstatement. Justify your decisions.

b. During the course of the audit, Delta’s CPA firm detected two misstatements that aggregated to an overstatement of income of $5.75 million. Evaluate the audit findings. Justify your decisions.

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