Emma's Designs is a for-profit clothing manufacturer. The components of its financial statements are: (1) income before taxes = $3.5 million, (2) total assets = $33 million, and (3) total revenues = $95 million. Emma's Designs is considered a moderate-risk audit, but Accounts Receivable is deemed to have a higher risk of misstatement. a. Determine overall materiality and tolerable misstatement. Justify your decisions. b. During the course of the audit, Emma's CPA firm detected one misstatement in a key customer's Accounts Receivable equal to $90,000. The firm also detected a second misstatement in Cash equal to $10,000. Evaluate the audit findings. Justify your decisions.

Emma's Designs is a for-profit clothing manufacturer. The components of its financial statements are: (1) income before taxes = $3.5 million, (2) total assets = $33 million, and (3) total revenues = $95 million. Emma's Designs is considered a moderate-risk audit, but Accounts Receivable is deemed to have a higher risk of misstatement. a. Determine overall materiality and tolerable misstatement. Justify your decisions. b. During the course of the audit, Emma's CPA firm detected one misstatement in a key customer's Accounts Receivable equal to $90,000. The firm also detected a second misstatement in Cash equal to $10,000. Evaluate the audit findings. Justify your decisions.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter6: Audit Evidence

Section: Chapter Questions

Problem 16RQSC: Indicate how the auditor could use substantive analytical procedures in resting the following...

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