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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
000. The firm also detect a second misst ement in Cash equal to $10,000. Evaluate the audit findings. Justify your
decisions.
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