Auditing: Future Earnings Management Activities at Maynard Manufacturing Company

Future Earnings Management Activities at Maynard Manufacturing Company (Page 54) Examples | GAAP-based | Latitude by GAAP | Fraud? | 1 | Yes | Yes (Gray Area) | No | 2 | Yes | Yes (Gray Area) | No | 3 | Yes | Yes (Black Area) | No | 4 | Yes | Yes (White Area) | No | 5 | Yes | Yes (Gray Area) | No | 6 | Yes | Yes (Black Area) | No | 7 | Yes | Yes (Black Area) | Yes | 8 | Yes | Yes (White Area) | No | 9 | No | Black Area | Yes | 10 | Yes | Yes (White Area) | No | 11 | Yes | Yes (Gray Area) | No | 12 | Yes | Yes (White Area) | No |

Problem 3.50 a) I would not propose an audit adjustment to the management estimate. The estimate of the inventory from $82,000 to $97,000. Even though, the management estimate of inventory is relative high; however it is within the reasonable range. b) If management’s estimate of inventory market had been $80,000, the estimate of the inventory from the management is high compare to the audit estimate adjustment. Hence, we would propose an audit adjustment.
Problem 3.46
Estimation of the five items: Write off deferred subscription costs $2 millions to $3 millions Provide allowance for bad debts $3 millions to $4 millions Provide for expected warranty expense $2 millions to $5 millions Lower of cost or market inventory write-down $2 millions to $3 millions Loss on government contract refund — Total write-offs and losses $9 millions to $16 millions

Multiple Choices Questions: 1. A 2. C 3. A 4. B 5. A 6. D 7. A 8. C 9. D 10.