Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 8, Problem 35DQP
a.
To determine
Identify the factors that Person L should consider in setting performance materiality for the asset accounts.
b.
To determine
Describe the reason for setting performance materiality of cash at the lowest amount.
c.
To determine
Describe the reason why Person L set performance materiality for inventory at a lower amount as compared to
d.
To determine
Describe the reason why Person L set performance materiality for accounts receivable at the highest amount.
e.
To determine
Describe whether setting materiality at a lower level result in collecting more or less audit evidence.
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Alexander Robinson, a junior auditor working for Big One Accounting Firm. He is included in the audit team engaging in the audit the Financial Reports of Complicated Ltd., a listed company on AST. When evaluating audit results for assets in the audit, Alexander has set the preliminary judgment about materiality to be $67,000. He then allocated the materiality to all the asset accounts. The account balances, performance materiality and estimated overstatements in the accounts are shown below:
Account
Account balance
Performance materiality
Estimate of total overstatements
Cash
60,000
6,000
5,500
Account receivable
1,300,000
20,000
500,000?
Inventory
2,100,000
60,000
45,000
Other assets
360,000
24,000
23,000
Total
4,090,000
110,000
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You are an audit manager of Cranberry & Co and you are currently responsible for the audit of Gooseberry Co, a company which develops and manufactures health and beauty products and distributes these to wholesale customers.
Its draft profit before tax is $6·4m and total assets are $37·2m for the financial year ended 31 January 20X8. The final audit is due to commence shortly and the following matters have been brought to your attention:
Research and development
Gooseberry Co spent $1·9m in the current year developing nine new health and beauty products, all of which are at different stages of development. Once they meet the recognition criteria under IAS38 Intangible Assetsfor development expenditure, Gooseberry Co includes the costs incurred within intangible assets. Once production commences, the intangible assets are amortised on a straight line basis over three years. Management believes that this amortisation policy is a reasonable approximation of the assets’ useful lives, as…
Chapter 8 Solutions
Auditing And Assurance Services
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - Prob. 9RQCh. 8 - Prob. 10RQCh. 8 - Prob. 11RQ
Ch. 8 - Prob. 12RQCh. 8 - Prob. 13RQCh. 8 - Your client, Harper Company, has a contractual...Ch. 8 - Prob. 15RQCh. 8 - Prob. 16RQCh. 8 - Prob. 17RQCh. 8 - Prob. 18RQCh. 8 - Prob. 19RQCh. 8 - Prob. 20RQCh. 8 - Prob. 21RQCh. 8 - Prob. 22RQCh. 8 - Prob. 23.1MCQCh. 8 - Prob. 23.2MCQCh. 8 - Prob. 23.3MCQCh. 8 - Prob. 24.1MCQCh. 8 - Prob. 24.2MCQCh. 8 - Prob. 24.3MCQCh. 8 - Which one of the following statements is correct...Ch. 8 - Prob. 25.2MCQCh. 8 - Prob. 25.3MCQCh. 8 - Prob. 26.1MCQCh. 8 - Prob. 26.2MCQCh. 8 - Prob. 26.3MCQCh. 8 - Prob. 27DQPCh. 8 - Prob. 28DQPCh. 8 - Prob. 32DQPCh. 8 - Prob. 33DQPCh. 8 - Prob. 34DQPCh. 8 - Prob. 35DQP
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