ASSIGNMENT
Assume that Xinran Wang, CPA, is using 5 percent of net income before taxes, current assets, or current liabilities as her major guideline for evaluating materiality. What qualitative factors should she also consider in deciding whether misstatements may be material?
How will the conduct of an audit of a medium-sized company be affected by the company’s being a small part of a large conglomerate as compared with it being a separate entity?
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 such that the preliminary judgment about materiality does not exceed $5,000. Justify your answer.
Account Amount
Cash $10,000
Fixed assets 60,000
$70,000
Account Amount
Long-term loans $30,000
M. Johnson, proprietor 40,000
$70,000
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.
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 $55,000, what should the auditor do?
