Anne Aylor‚ Inc. Determination of Planning Materiality and Tolerable Misstatement MARKS. BEASLEY· FRANK A. BucKLEss ·STEVEN M. GLOVER· DouGLAS F. PRAWITT LEARNING OBJECTIVES After completing and discussing this case you should be able to [1] [2] Determine planning materiality for an audit client Provide support for your materiality decisions [3] Allocate planning materiality to financial statement elements INTRODUCTION j-- Anne Aylor‚ Inc. (Anne Aylor) is a leading national
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other factors being equal‚ which of the following would lead to a larger sample size? A. Greater reliance on internal accounting controls. B. Greater reliance on analytical review procedures. C. Smaller expected frequency of misstatements. D. Smaller measure of tolerable misstatements. 4. Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? A. A Above. B. B Above. C. C Above. D. D Above. 1 5. In statistical
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how the business compares to others in the same industry. Also‚ misstatement of $1‚000 to a large company is not material whereas $1‚000 to a smaller company could be considered material. 1c. The materiality base with the smallest threshold is generally used because it is important that the auditors find small misstatements that could ultimately influence users of the financial statements. Plus‚ if they find many small misstatements in the financial statements‚ they could add up to make a huge impact
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components of inherent risk‚ control risk‚ and detection risk. The risk of material misstatement may be separated into two components-inherent risk and control risk. Both inherent risk and control risk exist independently of the audit of financial statements‚ or in other words‚ the risk of misstatement exists regardless of the audit being done or not. Inherent risk is the possibility of material misstatement of an assertion before considering the clients internal control. Factors that affect this
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[pic] | Our firm - Chiu & Weisserman LLP has been appointed as the new auditor of the public company Dollarama Inc. for the current fiscal year-end as at January 29‚ 2012. Please find in the following pages a report on the audit plan that was used to conduct our audit for the year ended January 29‚ 2012. Even though the audit of 2012 was performed by PWC‚ the assumption used for this project was that our firm was the new auditor for 2012. Please do not hesitate to contact us if you have any
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procedures will not detect a misstatement that exist in an account balance or class of transactions that could be material‚ individually or when aggregated with misstatements in other balances or classes. For example‚ the use of a limited sampling for the selection of transactions. Auditors should increase the number of sampling to reduce the detection risk. INHERENT RISK Inherent risk is the susceptibility of an account balance or class of transactions to material misstatement‚ individually or when
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known and likely misstatements for the current year to evaluate whether there is a sufficiently low risk of material misstatement of the financial statements to issue an opinion. However‚ Kealey notes that there are several misstatements that have been carried over from prior years. A .Distinguish between the iron curtain and the rollover approaches to considering the misstatements from prior years. In consideration of an auditor’s approach for considering the effects of misstatements from prior years
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more‚ Computerizing system would always make the same mistake‚ if the system has not designed properly. Thus‚ It might also contain some misstatement of transactions or increase opportunities that the transaction record incorrectly‚ such as ‚ some of sales transactions might record in ‘other income’ due to computerizing system design mistake. Misstatement of sales account would lead to estimate wrong actual profit at the end of financial year‚ thus it contain risks to estimate wrong also affect
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is no responsibility for understatements. b. There are two reasons for permitting the sum of tolerable misstatements to exceed overall materiality. First‚ it is unlikely that all accounts will be misstated by the full amount of tolerable misstatement. Second‚ some accounts are likely to be overstated while others are likely to be understated‚ resulting in net misstatement that is likely to be less than overall materiality. c. This results because of the estimate of sampling
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company’s internal control and we believe they are excellent. Therefore‚ the team has decided to use the Probability-proportionate-to-size sampling theory‚ (PPS). We have used PPS to find the evidence required to prove there has been no materially misstatement in Key West Company’s accounts receivable accounts. The financial cycle is the cycles of business transactions‚ which involve the processing of financial activity including cash inflows‚ outflows‚ dividends‚ stocks‚ and long term debt agreements
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