All Related Questions of Materiality

Q: How is materiality (or immateriality) related to the proper presentation

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in assessing the materiality of a misstatement in the p...

Q: Your aunt recently received the annual report for a company in which

Your aunt recently received the annual report for a company in which she has invested. The report notes that the statements have been prepared in accordance with IFRS. She has also heard that certain...

Q: At the balance sheet date, Clarkson Company held title to goods

At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. W...

Q: What quantitative materiality test is applied to determine whether a segment is

What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure?

Q: Choose the best answer. 1. Which of the following

Choose the best answer. 1. Which of the following activities would always indicate that an auditor’s independence has been impaired? a. Providing advice on establishing an internal control system. b....

Q: Define materiality as it is used in audit reporting. What conditions

Define materiality as it is used in audit reporting. What conditions will affect the auditor's determination of materiality?

Q: Explain how materiality differs for failure to follow GAAP and for lack

Explain how materiality differs for failure to follow GAAP and for lack of independence.

Q: For the following independent situations, assume that you are the audit

For the following independent situations, assume that you are the audit partner on the engagement: 1. During your audit of Raceway.com, Inc., you conclude that there is a possibility that inventory is...

Q: For the following independent situations, assume that you are the audit

For the following independent situations, assume that you are the audit partner on the engagement: 1. In the last 3 months of the current year, Oil Refining Company decided to change direction and go...

Q: The following questions concern information accompanying basic financial statements. Choose the

The following questions concern information accompanying basic financial statements. Choose the best response. a. The Form 10-K filed by management of a public company includes a section on management...

Q: The following items were discovered during the December 31, 2011 audit

The following items were discovered during the December 31, 2011 audit of the financial statements of Westmoreland Corporation: 1. The company's financial statements did not include an accrual for bon...

Q: The following questions concern reports issued by auditors, other than those

The following questions concern reports issued by auditors, other than those on historical financial statements. Choose the best response. a. An auditor is reporting on cash basis financial statements...

Q: In an engagement to review the financial statements of a nonpublic company

In an engagement to review the financial statements of a nonpublic company, SSARS require the accountant to obtain review evidence that is primarily based on inquiries and analytical procedures. The n...

Q: In your audit of Aviary Industries for calendar year 2011, you

In your audit of Aviary Industries for calendar year 2011, you found a number of matters that you believe represent possible adjustments to the company's books. These matters are described below. Mana...

Q: During the audit of the Merrill Manufacturing Company, Ralph Pyson,

During the audit of the Merrill Manufacturing Company, Ralph Pyson, CPA, has become aware of four lawsuits against the client through discussions with the client, reading corporate minutes, and review...

Q: The following apply to evaluating results of audit sampling for tests of

The following apply to evaluating results of audit sampling for tests of details of balances. For each one, select the best response. a. While performing a substantive test of details during an audit,...

Q: You intend to use MUS as a part of the audit of

You intend to use MUS as a part of the audit of several accounts for Roynpower Manufacturing Company. You have done the audit for the past several years, and there has rarely been an adjusting entry o...

Q: This problem requires the use of ACL software, which is included

This problem requires the use of ACL software, which is included in the CD attached to the text. Information about installing and using ACL and solving this problem can be found in Appendix, pages 838...

Q: Establishing materiality and allocation of materiality to individual accounts requires considerable judgment

Establishing materiality and allocation of materiality to individual accounts requires considerable judgment. Access Microsoft’s 2009 financial statements at www.microsoft.com (use the “investor relat...

Q: The following are parts of a typical audit for a company with

The following are parts of a typical audit for a company with a fiscal year-end of July 31. 1. Confirm accounts payable. 2. Do tests of controls and substantive tests of transactions for the acquisiti...

Q: The following questions deal with assessing control risk in a financial statement

The following questions deal with assessing control risk in a financial statement audit. Choose the best response. a. The auditor's tests of controls revealed that required approvals of cash disbursem...

Q: Assume a company with the following balance sheet accounts: /

Assume a company with the following balance sheet accounts: You are concerned only about overstatements of owner's equity. Set tolerable misstatement for the three relevant accounts such that the prel...

Q: Define the meaning of the term materiality as it is used in

Define the meaning of the term materiality as it is used in accounting and auditing. What is the relationship between materiality and the phrase obtain reasonable assurance used in the auditor's repor...

Q: The following questions deal with materiality. Choose the best response.

The following questions deal with materiality. Choose the best response. a. Which one of the following statements is correct concerning the concept of materiality? (1) Materiality is determined by re...

Q: You are evaluating audit results for current assets in the audit of

You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the preliminary judgment about materiality for current assets at $15,000 for overstatements and at $22,5...

Q: The following questions deal with audit risk and evidence. Choose the

The following questions deal with audit risk and evidence. Choose the best response. a. As the acceptable level of detection risk decreases, an auditor may (1) Reduce substantive testing by relying o...

Q: You are evaluating audit results for assets in the audit of Roberts

You are evaluating audit results for assets in the audit of Roberts Manufacturing. You set the preliminary judgment about materiality at $50,000. The account balances, tolerable misstatement, and esti...

Q: Explain why materiality is important but difficult to apply in practice.

Explain why materiality is important but difficult to apply in practice.

Q: Chapter 8 introduced the eight parts of the planning phase of an

Chapter 8 introduced the eight parts of the planning phase of an audit. Which part is the evaluation of materiality and risk?

Q: Redline Publishers, Inc. produces various manuals ranging from computer software

Redline Publishers, Inc. produces various manuals ranging from computer software instructional booklets to manuals explaining the installation and use of large pieces of industrial equipment. At the e...

Q: Listed below are several terms and phrases associated with the FASB’s conceptual

Listed below are several terms and phrases associated with the FASB’s conceptual framework. Pair each item from List A (by letter) with the item from List B that is most appropriatel...

Q: Listed below are several terms and phrases associated with the accounting concepts

Listed below are several terms and phrases associated with the accounting concepts. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.

Q: What is meant by the term materiality in financial reporting?

What is meant by the term materiality in financial reporting?

Q: Listed below are several terms and phrases associated with long-term

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.

Q: How is materiality determined?

How is materiality determined?

Q: Which of the following statements is not true with respect to the

Which of the following statements is not true with respect to the performance principle? a. Auditors are required to prepare a written audit plan during the planning stages of initial audits but are n...

Q: The reporting principle requires auditors to express their opinion through the issuance

The reporting principle requires auditors to express their opinion through the issuance of a written report. Required: a. What is the purpose of the auditors’ opinion and report? b. What are the majo...

Q: With respect to the concept of materiality, which of the following

With respect to the concept of materiality, which of the following statements is correct? a. Materiality depends only on the dollar amount of an item relative to other items in the financial statement...

Q: Which of the following is not a benefit claimed for the practice

Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit? a. Being able to fine-tune the audit work for effectiveness and e...

Q: How does an audit team use materiality on an audit engagement?

How does an audit team use materiality on an audit engagement?

Q: Identify the two methods of evaluating the performance materiality of uncorrected misstatements

Identify the two methods of evaluating the performance materiality of uncorrected misstatements. What are the requirements of Staff Accounting Bulletin No. 108 for evaluating the performance materiali...

Q: Aaron Rivers, CPA, is auditing the financial statements of Charger

Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of wh...

Q: During the conduct of an audit, auditors may identify misstatements as

During the conduct of an audit, auditors may identify misstatements as a result of the completion of their substantive procedures. An important activity performed in the completion stages of the audit...

Q: Pat Colt is auditing the financial statements of Manning Company. The

Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has identified during the past three years. These misstatements...

Q: The concepts of materiality and pervasiveness are important to auditors in examinations

The concepts of materiality and pervasiveness are important to auditors in examinations of financial statements and expressions of opinion on these statements. Required: How will materiality influenc...

Q: Auditors found that the entity has not capitalized a material amount of

Auditors found that the entity has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the auditors would choose betw...

Q: The following describes Japanese accounting before the Big Bang:

The following describes Japanese accounting before the Big Bang: The preparation of consolidated financial statements is based on the Securities and Exchange Law. Individual-company accounts are the...

Q: Taft Corporation operates primarily in the United States. However, a

Taft Corporation operates primarily in the United States. However, a few years ago it opened a plant in Spain to produce merchandise to sell there. This foreign operation has been so successful that d...

Q: Caplan Pharma, Inc., recently was sued by a competitor for

Caplan Pharma, Inc., recently was sued by a competitor for possible infringement of the competitor’s patent on a top-selling flu vaccine. The plaintiff is suing for damages of $15 million. Caplan’s CF...

Q: For the transactions in M2-5, identify each as an

For the transactions in M2-5, identify each as an investing (I) activity or financing (F) activity on the statement of cash flows. M2-5 For each of the following transactions of Pitt Inc. for the m...

Q: Following are the concepts of accounting covered in Chapters 2 through 5

Following are the concepts of accounting covered in Chapters 2 through 5. Match each transaction or definition with its related concept by entering the appropriate letter in the space provided. Use on...

Q: Match the accounting terms with the corresponding definitions. /

Match the accounting terms with the corresponding definitions.

Q: Discuss the materiality concept. Is the dollar amount that is material

Discuss the materiality concept. Is the dollar amount that is material the same for a company that has annual sales of $10,000 compared with a company that has annualsales of $1,000,000?

Q: Which of the following prevents a company from switching its inventory costing

Which of the following prevents a company from switching its inventory costing methodto a different method each year? a. Consistency principle b. Materiality concept c. Matching principle d. Disclosur...

Q: Which of the following is most closely linked to the accounting principle

Which of the following is most closely linked to the accounting principle of conservatism? a. Consistency principle b. Disclosure principle c. Lower-of-cost-or-market rule d. Materiality concept

Q: Which of the following prevents a company from switching its inventory costing

Which of the following prevents a company from switching its inventory costing method to a different method each year? a. Consistency principle b. Materiality concept c. Matching principle d. Disclosu...

Q: Prior to the Internet, the Bank Rate Monitor served as the

Prior to the Internet, the Bank Rate Monitor served as the primary source of information for U.S. consumers searching for the best available mortgage interest rates and interest rates on certificates...

Q: Cyrus McCormick revolutionized American agriculture in the mid-nineteenth century when

Cyrus McCormick revolutionized American agriculture in the mid-nineteenth century when he invented a mechanical reaper. His horse-drawn harvester would become the primary product marketed by McCormick...

Q: In 1956, the Republic of the Sudan obtained its independence from

In 1956, the Republic of the Sudan obtained its independence from Great Britain. Although unified, Sudan was effectively two countries within one. Northern Sudan, home of the nation’s capital, Khartou...

Q: In September 2015, the FASB proposed changing the definition of materiality

In September 2015, the FASB proposed changing the definition of materiality in Chapter 3 of SFAC No. 8. Required: a. How did SFAC No. 2 define materiality? b. What is the FASB’s proposed new definitio...

Q: The theoretical valuation of receivables is the present value of expected future

The theoretical valuation of receivables is the present value of expected future cash flows. However, trade receivables are not discounted owing to materiality considerations; hence, their net realiza...

Q: SFAC No. 5 indicates that, to be recognized, an

SFAC No. 5 indicates that, to be recognized, an item should meet four criteria, subject to the cost-benefit constraint and materiality threshold. List these criteria.

Q: Comment on the materiality implications of the Sarbanes-Oxley Act.

Comment on the materiality implications of the Sarbanes-Oxley Act.

Q: Following are the concepts of accounting covered in Chapters 2 through 5

Following are the concepts of accounting covered in Chapters 2 through 5. Match each transaction or definition with its related concept by entering the appropriate letter in the space provided. Use on...

Q: Do you think the concept of materiality is incompatible with ethical behavior

Do you think the concept of materiality is incompatible with ethical behavior? Consider in your answer how materiality judgments affect risk assessment in the audit of financial statements.

Q: Mr. Arty works for Smile Accounting Firm as a senior accountant

Mr. Arty works for Smile Accounting Firm as a senior accountant. Currently he is doing a review of rental property compliance testing of rental receipts and expenses of the property owned by the clien...

Q: Distinguish between an auditor’s responsibilities to detect and report errors, illegal

Distinguish between an auditor’s responsibilities to detect and report errors, illegal acts, and fraud. What role does materiality have in determining the proper reporting and disclosure of such event...

Q: Comment on the statement that materiality is in the eye of the

Comment on the statement that materiality is in the eye of the beholder. How does this statement relate to the discussion in the chapter of how to gauge materiality in assessing financial statement re...

Q: Bill Stanley, of Jacobs, Stanley & Company, started to

Bill Stanley, of Jacobs, Stanley & Company, started to review the working paper files on his client, Imperial Valley Community Bank, in preparation for the audit of the client’s financial statements f...

Q: One of the earliest frauds during the late 1990s and early 2000s

One of the earliest frauds during the late 1990s and early 2000s was at Sunbeam. The SEC alleged in its charges against Sunbeam that top management engaged in a scheme to fraudulently misrepresent Sun...

Q: The North Face, Inc. (North Face) is an

The North Face, Inc. (North Face) is an American outdoor product company specializing in outerwear, fleece, coats, shirts, footwear, and equipment such as backpacks, tents, and sleeping bags. North Fa...

Q: Your aunt recently received the annual report for a company in which

Your aunt recently received the annual report for a company in which she has invested. The report notes that the statements have been prepared in accordance with “generally accepted accounting princip...

Q: Matrixx Initiatives, Inc., makes and sells over-the-

Matrixx Initiatives, Inc., makes and sells over-the-counter pharmaceutical products. Its core brand is Zicam, which accounts for 70 percent of its sales. Matrixx received reports that some consumers h...

Q: What is the current numerical materiality standard in accounting?

What is the current numerical materiality standard in accounting?

Q: In what way is the concept of materiality contained in SAB 99

In what way is the concept of materiality contained in SAB 99 different from the traditional concept of materiality?

Q: Only two materiality tests are used to determine separately reportable foreign operations

Only two materiality tests are used to determine separately reportable foreign operations. What are these two tests?

Q: Watson Inc., a multinational company, has operating divisions in France

Watson Inc., a multinational company, has operating divisions in France, Mexico, and Japan as well as in the United States. The company reported the following information on its consolidated financial...

Q: West Corporation reported the following consolidated data for 20X2:

West Corporation reported the following consolidated data for 20X2: Data reported for West’s four operating divisions are as follows: Intersegment sales are priced at c...

Q: For many years, Clark Company operated exclusively in the United States

For many years, Clark Company operated exclusively in the United States but recently expanded its operations to the Pacific Rim countries of New Zealand, Singapore, and Australia. After a modest begin...

Q: Symbiotic Chemical Company has four major industry segments and operates both in

Symbiotic Chemical Company has four major industry segments and operates both in the U.S. domestic market and in several foreign markets. Information about its revenue from the specific industry segme...

Q: Information about the domestic and foreign operations of Radon Inc. is

Information about the domestic and foreign operations of Radon Inc. is as follows: Required: Prepare schedules showing appropriate tests to determine which countries are material using a 10 percent...

Q: Choose the best answer. 1. Under the hierarchy of

Choose the best answer. 1. Under the hierarchy of GAAP for a state and local government, which of the following has the highest level of authority? a. AICPA Practice Bulletins if specifically made app...

Q: Identify each of the following terms/phrases as either an accounting

Identify each of the following terms/phrases as either an accounting: (a) principle, (b) assumption, or (c) constraint. 1. Materiality 2. Time period 3. Benefit exceeds cost 4. Revenue recognitio...

Q: Assessing whether an accounting error is material is addressed in FASB

Assessing whether an accounting error is material is addressed in FASB ASC paragraph 250–10- S55-1 (also paragraph 250-10-S99-1) and in FASB Concepts Statement No. 2. In concept 2, FASB states: The o...

Q: Mike Trusler has prepared the following list of statements about budgetary control

Mike Trusler has prepared the following list of statements about budgetary control. 1. Budget reports compare actual results with planned objectives. 2. All budget reports are prepared on a weekly bas...

Q: Obtain the Target Corporation’s annual report at http://investors.target

Obtain the Target Corporation’s annual report at http://investors.target.com using the instructions in Appendix B, and use it to answer the following questions: a. Who are the independent auditors for...

Q: At the balance sheet date, Clarkson Company held title to goods

At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. Wha...

Q: The concept of materiality is one of the most basic principles underlying

The concept of materiality is one of the most basic principles underlying financial accounting. a. Answer the following questions. 1. Why is the materiality of a transaction or an event a matter of p...

Q: The concept of materiality is an underlying principle of financial reporting.

The concept of materiality is an underlying principle of financial reporting. a. Briefly explain the concept of materiality. b. Is $2,500 a material dollar amount? Explain. c. Describe two ways in...

Q: For each of the following situations described, indicate the underlying accounting

For each of the following situations described, indicate the underlying accounting principle that is being violated. Choose from the following principles. Matching Materiality Cost...

Q: For each of the following scenarios, perform the three steps in

For each of the following scenarios, perform the three steps in the materiality process: (1) determine overall materiality, (2) determine tolerable misstatement, and (3) evaluate the audit findings. S...

Q: You are the audit manager for Ken-Ron Enterprises. Your

You are the audit manager for Ken-Ron Enterprises. Your firm has been the entity’s auditor for 15 years. Your firm normally uses a range of 3% to 5% of income before taxes to calcula...

Q: Suppose that you are the auditor of a major retail client who

Suppose that you are the auditor of a major retail client who has reported the following income before taxes (IBT) for the first two quarters of the year: 1st quarter = $1,200,000 and 2nd quarter = $1...

Q: Which of the following concepts are pervasive in the application of auditing

Which of the following concepts are pervasive in the application of auditing standards? a. Internal control. b. Expected misstatement. c. Control risk. d. Materiality and audit risk.

Q: As lower acceptable levels of both audit risk and materiality are established

As lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual accounts to a. Find smaller errors. b. Find larger errors. c. Increase th...

Q: List and describe the three major steps in applying materiality to an

List and describe the three major steps in applying materiality to an audit.

Q: An advantage of statistical sampling over non statistical sampling is that statistical

An advantage of statistical sampling over non statistical sampling is that statistical sampling helps an auditor to a. Eliminate the risk of non sampling errors. b. Reduce audit risk and materiality t...

Q: Doug Stevens, CPA, is interested in testing the fairness of

Doug Stevens, CPA, is interested in testing the fairness of the ending inventory balance during the audit of Morris Co. Doug has relatively little experience using statistical sampling methods and, qu...

Q: Which of the following statements best describes the role of materiality in

Which of the following statements best describes the role of materiality in a financial statement audit? a. Materiality refers to the “material” from which audit evidence is developed. b. The higher t...

Q: When planning an audit, an auditor should a. Consider

When planning an audit, an auditor should a. Consider whether the extent of substantive procedures may be reduced based on the results of tests of controls. b. Determine overall materiality for audit...

Q: Tolerable misstatement is a. The amount of misstatement that management

Tolerable misstatement is a. The amount of misstatement that management is willing to tolerate in the financial statements. b. Materiality for the balance sheet as a whole. c. Materiality for the inco...

Q: Which of the following would an auditor most likely use in determining

Which of the following would an auditor most likely use in determining overall materiality when planning the audit? a. The anticipated sample size of the planned substantive tests. b. The entity’s inc...

Q: Samples to test internal controls are intended to provide a basis for

Samples to test internal controls are intended to provide a basis for an auditor to conclude whether a. The controls are operating effectively. b. The financial statements are materially misstated. c....

Q: The “Accounts Receivable—Confirmation Statistics” working paper shown on

The “Accounts Receivable—Confirmation Statistics” working paper shown on the next page was prepared by an audit assistant for the 2018 audit of Le...

Q: Select the best answer for each of the following. Explain the

Select the best answer for each of the following. Explain the reasons for your selection. a. In planning and performing an audit, auditors are concerned about risk factors for two distinct types of fr...

Q: You have been hired to perform the audit of Hanmei, Inc

You have been hired to perform the audit of Hanmei, Inc.’s financial statements. When planning such an audit, you often may need to access the profession’s auditing standards to perform research. For...

Q: When planning an audit, the auditors should assess the levels of

When planning an audit, the auditors should assess the levels of risk and materiality for the engagement. Explain how the auditors’ judgments about these two factors affect the auditors’ planned audit...

Q: In planning every audit, the auditors are required to consider materiality

In planning every audit, the auditors are required to consider materiality for audit purposes. Described below are financial statement data from two separate companies: Required: a. Develop an estim...

Q: The auditors sometimes decide to allocate the amount of materiality for planning

The auditors sometimes decide to allocate the amount of materiality for planning to various financial statement accounts. Required: a. Explain why auditors typically decide to allocate materiality fo...

Q: How does the materiality of a departure from GAAP affect the auditor’s

How does the materiality of a departure from GAAP affect the auditor’s choice of financial statement audit reports?

Q: Items 1 through 16 represent a series of unrelated statements, questions

Items 1 through 16 represent a series of unrelated statements, questions, excerpts, and comments taken from various parts of an auditor’s working paper file. Below items 1 through 16 is a list of the...

Q: Wyly Waste Management (“WWM”) is an SEC registrant and your

Wyly Waste Management (“WWM”) is an SEC registrant and your firm is its auditor. Overall materiality for the audit is $100,000. Shortly after the end of the year, WWM’s CFO is meeting with your audit...

Q: The July 31, 20X0, general ledger trial balance of Aerospace

The July 31, 20X0, general ledger trial balance of Aerospace Contractors, Inc., reflects the following accounts associated with receivables. Balances of the accounts are after all adjusting journal en...

Q: This simulation, available online, presents an audit request list document

This simulation, available online, presents an audit request list document for materials requested of management that has been prepared by an audit team staff member for the Keystone audit. Because th...

Q: 1. Which is the accounting summary that presents the financial condition

1. Which is the accounting summary that presents the financial condition, or financial health, of a business? A. Balance Sheet B. Income Statement C. Profit and Loss Statement D. Statement of Cash Flo...

Q: Your friend, Alexei Antropov, has recently began working for an

Your friend, Alexei Antropov, has recently began working for an auditing fi rm and he wants your advice regarding some tests of sales transactions that he is currently undertaking with respect to one o...

Q: Ann Marcus, CPA, is performing an audit for one of

Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2020, year end. The audit program requires a substantive analytical procedure to...

Q: You are the audit senior for the audit of Grosse Ltd.

You are the audit senior for the audit of Grosse Ltd. and have been given the audit fi le to review. The reporting date is December 31, 2020, and the materiality for the client has been set at $200,000...

Q: The staff at Nguyen and Partners have completed the necessary audit work

The staff at Nguyen and Partners have completed the necessary audit work for Manitoba Metal Fabricators. The partner responsible for the audit is now reviewing the audit file. She has come across the Sc...

Q: You are the audit senior of Ball Construction Corporation (BC),

You are the audit senior of Ball Construction Corporation (BC), a small public company that enters into construction contracts with individuals and developers and builds to their specifications. BC is...

Q: HHH Corporation manufactures automobile engines. In 2018, the treasurer at

HHH Corporation manufactures automobile engines. In 2018, the treasurer at HHH decided to invest the company’s surplus funds in the commodities market. She intended for it to be a short-term investmen...

Q: Auto Care Ltd. (ACL) is a federally incorporated public

Auto Care Ltd. (ACL) is a federally incorporated public company formed in 2014 to manufacture and sell specialty auto products such as paint protection and rust proofing. By 2018, ACLâ€...

Q: How does the auditor’s preliminary assessment of materiality affect audit planning?

How does the auditor’s preliminary assessment of materiality affect audit planning? What does an auditor consider when making the preliminary assessment of materiality?

Q: The materiality of an item is assessed relative to a particular base

The materiality of an item is assessed relative to a particular base number. What are some of the choices for this base, and what factors guide the auditor in this choice?

Q: Discuss the factors to consider when determining preliminary materiality for Securimax.

Discuss the factors to consider when determining preliminary materiality for Securimax. Questions 4.21 and 4.22 are based on the following case. Fellowes and Associates is a successful mid-tier accoun...

Q: W&S Partners commenced the risk assessment phase of the Cloud

W&S Partners commenced the risk assessment phase of the Cloud 9 audit with procedures to gain an understanding of the client’s structure and its business environment. You have co...

Q: Planning, performance, and specific materiality Challenging LO 2 Claytonhill Beverages

Planning, performance, and specific materiality Challenging LO 2 Claytonhill Beverages Ltd. is 100-percent owned by Buzz Bottling. While the company has in the past been profitable, it incurred a loss...

Q: Carl’s Computers imports computer hardware and accessories from China, Japan,

Carl’s Computers imports computer hardware and accessories from China, Japan, Korea, and the United States. It has branches in every provincial capital, and the main administration office and central...

Q: Gold Explorers Inc. is a major Canadian gold mining corporation.

Gold Explorers Inc. is a major Canadian gold mining corporation. Gold Explorers has mines and development projects in Canada (Northern Ontario and British Columbia), the United States, and South Ameri...

Q: Tom’s Trailers Ltd. (TTL), located in London, Ontario

Tom’s Trailers Ltd. (TTL), located in London, Ontario, manufactures industrial trailers that are used to ship goods across the country. Originally, Tom Tran owned 60 percent of the c...

Q: Ana Dinh used 0.5 to 5 percent of gross profit

Ana Dinh used 0.5 to 5 percent of gross profit in determining materiality of $70,000 in her audit of XYZ Inc., a company that builds replacement engines for tractors and combines. She used the $70,000...

Q: Atlantic Academy is a private school that offers education to children from

Atlantic Academy is a private school that offers education to children from Kindergarten to Grade 7. The school operates as a not-for-profit entity and oversight of the school is performed by the boar...

Q: Connie Rice has prepared the following list of statements about budgetary control

Connie Rice has prepared the following list of statements about budgetary control. 1. Budget reports compare actual results with planned objectives. 2. All budget reports are prepared on a weekly basi...

Q: What similarities are there between materiality and disclosure?

What similarities are there between materiality and disclosure?

Q: Using different studies at different times it still appears to be the

Using different studies at different times it still appears to be the case that financial executives have a higher threshold for materiality than either Certified Public Accountants or financial analy...

Q: Why does it make sense to define materiality from the user’s perspective

Why does it make sense to define materiality from the user’s perspective?

Q: Jim Thome has prepared the following list of statements about budgetary control

Jim Thome has prepared the following list of statements about budgetary control. Understand the concept of budgetary control. 1. Budget reports compare actual results with planned objectives. 2. All b...

Q: Dry Quick (DQ) is a medium-sized, private

Dry Quick (DQ) is a medium-sized, private manufacturing company located near Timmins, Ontario. DQ has a June 30 year-end. Your firm, Poivre & Sel (P&S), has recently been appointed as auditors...

Q: Enviro Facilities Inc. (EFl) is a large, diversified

Enviro Facilities Inc. (EFl) is a large, diversified Canadian-controlled private company with several Canadian and U.S. subsidiaries, operating mainly in the waste management and disposal industry. EF...

Q: Segment reporting can provide useful information for investors and competitors. Segment

Segment reporting can provide useful information for investors and competitors. Segment disclosures can result in competitive harm for the company making the disclosures. By analyzing segment informat...

Q: RAD Communications Ltd. (RAD), a Canadian public company,

RAD Communications Ltd. (RAD), a Canadian public company, recently purchased the shares of TOP Systems Inc. (TOP), a Canadian-controlled private corporation. Both companies are in the communications i...

Q: The following questions concern auditor professional responsibilities. Choose the best

The following questions concern auditor professional responsibilities. Choose the best response. a. The concept of materiality would be least important to an auditor when considering the (1) adequacy...

Q: The following questions deal with client acceptance, audit planning, and

The following questions deal with client acceptance, audit planning, and materiality. Choose the best response. a. In which of the following circumstances would an auditor of an issuer be least likely...

Q: The following are independent situations for which you will recommend an appropriate

The following are independent situations for which you will recommend an appropriate audit report: 1. Subsequent to the date of the financial statements as part of his post-balance sheet date audit pr...

Q: The following questions deal with assessing control risk in a financial statement

The following questions deal with assessing control risk in a financial statement audit. Choose the best response. a. On the basis of audit evidence gathered and evaluated, an auditor decides to incre...

Q: The following questions deal with audit risk and evidence. Choose the

The following questions deal with audit risk and evidence. Choose the best response. a. Which of the following does not increase the need for sufficient appropriate audit evidence? (1) A lower accepta...

Q: The following questions deal with materiality. Choose the best response.

The following questions deal with materiality. Choose the best response. a. Which one of the following statements is correct concerning the concept of materiality? (1) Materiality is determined by ref...

Q: For the following independent situations, assume that you are the audit

For the following independent situations, assume that you are the audit partner on the engagement: 1. A number of frozen yogurt stores have opened in the last few years and your client, YogurtLand, ha...

Q: Ling, an audit manager, is planning the audit of Modern

Ling, an audit manager, is planning the audit of Modern Technologies, Inc. (MT, Inc.), a manufacturer of electronic components. This is the first year that Ling’s audit firm has perf...

Q: Following are statements of earnings and financial position for Wexler Industries.

Following are statements of earnings and financial position for Wexler Industries. // Required: a. Use professional judgment in deciding on the preliminary judgment about materiality for earnings...

Q: The following are various activities an auditor does during audit planning.

The following are various activities an auditor does during audit planning. 1. Review accounting principles unique to the client’s industry 2. Determine the likely users of the financial statements 3....

Q: Assume a company with the following balance sheet accounts: You

Assume a company with the following balance sheet accounts: You are concerned only about overstatements of owner’s equity. Set performance materiality for the three relevant accounts...

Q: Assume materiality for the financial statements as a whole is $100

Assume materiality for the financial statements as a whole is $100,000 and performance materiality for accounts receivable is set at $40,000. If the auditor finds one receivable that is overstated by...

Q: Explain how audit risk and materiality are related and why they need

Explain how audit risk and materiality are related and why they need to be considered together in planning an audit.

Q: Provide two examples of when an auditor might set a lower level

Provide two examples of when an auditor might set a lower level of performance materiality for a particular class of transactions, account balance, or disclosure.

Q: In your audit of Aviary Industries for calendar year 2019, you

In your audit of Aviary Industries for calendar year 2019, you found number of matters that you believe represent possible adjustments to the company’s books. These matters are described below. Manage...

Q: The audit firm of Waggoner and Allen, LLP, recently received

The audit firm of Waggoner and Allen, LLP, recently received a request to submit a proposal to audit the financial statements of the Williamson County Public School System. The system is funded mostly...

Q: In an engagement to review the financial statements of a nonpublic company

In an engagement to review the financial statements of a nonpublic company, SSARS require the accountant to obtain review evidence that is primarily based on inquiries and analytical procedures. The n...

Q: The following items were discovered during the December 31, 2019,

The following items were discovered during the December 31, 2019, audit of the financial statements of Westmoreland Corporation: 1. The company’s financial statements did not include...

Q: This problem requires the use of ACL software, which can be

This problem requires the use of ACL software, which can be accessed through the textbook website. Information about downloading and using ACL and the commands used in this problem can also be found o...

Q: The following questions deal with governmental auditing. Choose the best response

The following questions deal with governmental auditing. Choose the best response. a. Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regula...

Q: The following questions concern information accompanying basic financial statements. Choose the

The following questions concern information accompanying basic financial statements. Choose the best response. a. The Form 10-K filed by management of a public company includes a section on management...

Q: The following apply to evaluating results of audit sampling for tests of

The following apply to evaluating results of audit sampling for tests of details of balances. For each one, select the best response. a. While performing a substantive test of details during an audit,...

Q: The Salah Company sells electronics equipment and has grown rapidly in the

The Salah Company sells electronics equipment and has grown rapidly in the last year by adding new customers. The audit partner has asked you to evaluate the allowance for doubtful accounts at Decembe...

Q: The following are steps in the methodology for designing tests of controls

The following are steps in the methodology for designing tests of controls, substantive tests of transactions, and tests of details of balances for the payroll and personnel cycle: 1. Design tests of...

Q: Introduction: Garcia and Foster, CPAs, is a regional firm

Introduction: Garcia and Foster, CPAs, is a regional firm with 20 offices located in large cities throughout the western United States. As part of its quality control procedures, the firm chooses 5 of...

Q: Cronkelton v. Guaranteed Construction Services, LLC Court of Appeals

Cronkelton v. Guaranteed Construction Services, LLC Court of Appeals of Ohio, Third District, 2013 -Ohio- 328, 988 N.E.2d 656 (2013). The case before this Court stems from a real estate transaction fo...

Q: Cipriano Square Plaza Corp. v. Munawar Maryland Court of

Cipriano Square Plaza Corp. v. Munawar Maryland Court of Special Appeals, 2018 WL 1040020 (2018). Background and Facts; Haseeb and Razia Munawar entered into a lease to rent space in a shopping center...

Q: Materiality has always been an elusive concept in IFRS. It is

Materiality has always been an elusive concept in IFRS. It is defined in a general sense, but, in the past, there has been little guidance to help preparers and others apply the concept. For this reas...

Q: In this chapter we noted that Roberts and Dwyer (1998)

In this chapter we noted that Roberts and Dwyer (1998) appear to suggest that auditors should disclose the level of materiality they have used when conducting the audit. Given that this is now a requi...

Q: Redline Publishers, Inc. produces various manuals ranging from computer software

Redline Publishers, Inc. produces various manuals ranging from computer software instructional booklets to manuals explaining the installation and use of large pieces of industrial equipment. At the e...

Q: The focus of the case is the situation described in Judgment Case

The focus of the case is the situation described in Judgment Case 11–5. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to...

Q: Required Obtain Target Corporation’s annual report for its 2018 fiscal year

Required Obtain Target Corporation’s annual report for its 2018 fiscal year (year ended February 2, 2019) at http://investors.target.com using the instructions in Appendix B, and use it to answer the...

Q: The following questions all relate to the qualitative characteristics of useful financial

The following questions all relate to the qualitative characteristics of useful financial information as defined by the IASB’s Conceptual Framework for Financial Reporting: (i) To which characteristic...

Q: SAB Topic 1.M., Assessing Materiality, found in FASB

SAB Topic 1.M., Assessing Materiality, found in FASB ASC 250-10-S99-1, presents the SEC’s views on the issue of materiality in the financial statements. Based on this document, indicate whether each o...

Q: Obtain Target Corporation’s annual report for its 2019 fiscal year (year

Obtain Target Corporation’s annual report for its 2019 fiscal year (year ended February 1, 2020) at http://investors.target.com using the instructions in Appendix B, and use it to answer the following...

Q: Redline Publishers, Inc. produces various manuals ranging from computer software

Redline Publishers, Inc. produces various manuals ranging from computer software instructional booklets to manuals explaining the installation and use of large pieces of industrial equipment. At the e...

Q: One of your responsibilities as division manager of an important component of

One of your responsibilities as division manager of an important component of Paramount Industries is to oversee accounting for the division. One of the issues you are responsible for on a continuous...

Q: Katy Carmichael, CPA, was just promoted to audit manager in

Katy Carmichael, CPA, was just promoted to audit manager in the technology sector at a large public accounting firm. She started at the firm six years ago and has worked on a number of the same client...

Q: On January 30, 2018, General Electric (GE) announced

On January 30, 2018, General Electric (GE) announced that it was taking an after-tax charge of $6.2 billion in the December 31, 2017 financial statements and additional cash funding of $15 billion in...

Q: The North Face, Inc. (North Face) is an

The North Face, Inc. (North Face) is an American outdoor product company specializing in outerwear, fleece, coats, shirts, footwear, and equipment such as backpacks, tents, and sleeping bags. North Fa...

Q: One day your ethics professor comes into class and proclaims that audit

One day your ethics professor comes into class and proclaims that audit firms should be allowed to make materiality judgments when determining whether independence rules have been violated. After all,...

Q: On September 15, 2008, Lehman Brothers Holdings Inc., one

On September 15, 2008, Lehman Brothers Holdings Inc., one of the world’s most respected and profitable investment banks, filed for Chapter 11 bankruptcy protection in the United Stat...

Q: In mid-2011, Sino-Forest Corporation was a company

In mid-2011, Sino-Forest Corporation was a company with timber operations in China, including tree plantation (holding of timber for appreciation and/or harvesting), log and wood products trading, and...

Q: We have had Paige & Gentry as our auditors for many years

We have had Paige & Gentry as our auditors for many years, haven’t we, Jane? They have been here since I became president two years ago.” “Yes, Bob, I have been the CFO for seven years, and they were...

Q: How does the materiality convention affect day-to-day accounting

How does the materiality convention affect day-to-day accounting?

Q: How are the concepts of materiality and cost-benefit related?

How are the concepts of materiality and cost-benefit related?

Q: Large public companies in the U.S. are required by

Large public companies in the U.S. are required by law to engage an auditor to perform an “integrated audit” involving both a traditional financial statement audit and an audit of internal control ove...

Q: In a management review control (MRC), members of management review

In a management review control (MRC), members of management review key information and evaluate its reasonableness by comparing it to expected values. Some examples include comparing budget to actual,...

Q: Anne Aylor, Inc. (Anne Aylor) is a leading

Anne Aylor, Inc. (Anne Aylor) is a leading national specialty retailer of high-quality women’s apparel, shoes, and accessories sold primarily under the “Anne Aylor&...

Q: Northwest Bank (NWB) has banking operations in 35 communities in

Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan por...

Q: The Financial Accounting Standard Board’s Accounting Standards Codification Topic 820, Fair

The Financial Accounting Standard Board’s Accounting Standards Codification Topic 820, Fair Value Measurement, (ASC 820) provides a framework for measuring or estimating the fair value of certain asse...

Q: RedPack Beer Company is a privately-held micro brewery located in

RedPack Beer Company is a privately-held micro brewery located in Raleigh, North Carolina. Bank loan covenants require that RedPack submit audited financial statements annually to the bank. Specifical...

Q: Southeast Shoe Distributor (SSD) is a closely owned business that

Southeast Shoe Distributor (SSD) is a closely owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men’s, wo...

Q: The information below relates to the audit of EyeMax Corporation, a

The information below relates to the audit of EyeMax Corporation, a client with a calendar year-end. EyeMax has debt agreements associated with publicly traded bonds that require audited financial sta...

Q: Auto Parts, Inc. (“the Company”) manufactures automobile subassemblies

Auto Parts, Inc. (“the Company”) manufactures automobile subassemblies marketed primarily to the large U.S. automakers. The publicly held Company’s unaudited financial statements for the year ended De...