Case 7.1 Anne Aylor Inc. Determination of Planning Materiality and Performance Materiality by Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt Please answer what is required number 1 and 2 REQUIRED[1] Review Exhibits 1 and 2; audit memos G-3 and G-4; and audit schedules G-5, G-6 and G-7. Based on your review, answer each of the following questions:[a] Why are different materiality bases considered when determining planning materiality?[b] Why are different materiality thresholds relevant for different audit engagements?[c] Why is the materiality base that results in the smallest threshold generally used for planning purposes?[d] Why is the risk of management fraud considered when determining performance materiality?[e] Why might an auditor not use the same performance materiality amount or percentage ofaccount balance for all financial statement accounts?[f] Why does the combined total of individual account performance materiality commonly exceed the estimate of planning materiality?[g] Why might certain trial balance amounts be projected when considering planning materiality?[2] Based on your review of the Exhibits (1 and 2) and audit memos (G-3 and G-4), complete audit schedules G-5, G-6 and G-7.Case 8.1 Laramie Wire Manufacturing Using Analytical Procedures in Audit Planning Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. PrawittPlease do answer what is required and the professional judgment questionREQUIRED[1] Perform analytical procedures to help you identify relatively risky areas that indicate the need for further attention during the audit, if any.[2] Focus specifically on each of the following balance-related management assertions for the inventory account: existence, completeness, valuation, and rights and obligations. Link any risks you identified for this account in question 1 to the related management assertion. Briefly explain identified risks for the inventory account that require further attention, if any.PROFESSIONAL JUDGMENT QUESTIONIt is recommended that you read the Professional Judgment Introduction found at the beginning of this book prior to responding to the following question.[3] Why might an auditor be likely to adopt a client's judgment frame in performing preliminary analytical procedures, and how might that frame affect her or his evaluation of the findings from the procedures that were performed?More information can be view in this linkchrome://external-file/1376815_1_auditing-cases-2.3.pdf Section 7: Planning MaterialityAnne Aylor, Inc.Planning Materiality AssessmentYear Ended: January 31, 2015ReferenceG5Prepared by:Date:Reviewed by:Primary Users of Financial Statements (list):Materiality Bases (in thousands):Fiscal 2014 Fiscal 2015ActualFinancialPlanning Materiality LevelsLower LimitProjectedFinancialUpper LimitDollarAmountStatementStatementDollarBaseAmountsAmountsPercentAmountPercentcome Before TaxeNet RevenuesCurrent LiabilitiesCurrent AssetsTotal Assets20.5227270.52Planning Materiality (in thousands):Explanation:228© 2015 Pegrson Education. Inc.Case 7.1: Anne Aylor, Inc.Anne Aylor, Inc.Performance Materiality AssessmentYear Ended: January 31, 2015Reference:G 6Prepared by:Date:Reviewed by:Likelihood of Management Fraud (check one):Low Likelihood of Management FraudReasonably Low Likelihood of Management FraudModerate Likelihood of Management FraudPerformance Materiality (in thousands):Planning Materiality:Multiplication Factor (0.75 if low likelihood of management fraud, 0.50 if reasonablylow likelihood of management fraud, and 0.25 if moderate likelihood of managementfraud).IsPerformance Materiality (in thousands)Specific Accounts Requiring Lower Performance Materiality:PerformanceMaterialityAccountExplanation:Explanation:Explanation:Explanation:Explanation:Explanation:© 2015 Pearson Education, Inc.229 Section 7: Planning MaterialityAnne Aylor, Inc.Reference:G 7Planning Materiality Financial InformationYear Ended: January 31, 2015Prepared by:Date:Reviewed by:1/31/20152/1/2014All amounts are in thousandsProjectedActualNet sales$1,305,600 $1,243,788Cost of sales596,700573,727Gross marginSelling, general and administrative expensesOperating income/(lossInterest incomeInterest expense670,061708,900604,600585,225104,30084,8367006361,100103,90041,4001,009Income/(loss) before income taxesIncome tax provision/(benefit)Net income/(loss)84,46333,686$62,500 $50,777AssetsCurrent assetsCash and cash equivalents$124,200 $115,84512,892137,647Accounts receivable13,900Merchandise inventories148,600Refundable income taxes4,5004,16517,90038,000347,100Deferred income taxes16,572Prepaid expenses and other current assets35,199Total current assets322,320254,475Property and equipment, netDeferred income taxes275,5004,10013,7003,790Other assets12,670Total assets640,400593,255LiabilitiesCurrent liabilitiesAccounts payable$62,800 $58,165Accrued salaries and bonus25,77927,80023,800Accrued tenancy22,014Gift certificates and merchandise credits redeemable30,60027,654Accrued expenses and other current liabilities60,20055,768Total current liabilities205,200189,380Deferred lease costs102,10094,593Deferred income taxes21Long-term performance compensationOther liabilities9,60033,8008.87731,339Total liabilities350,700324,210Stockholders' equityCommon stock and paid in capitalRetained earningsAccumulated other comprehensive loss466,300432,080483,000(1,800)(657,800)447,556(1,652)(608,939)Treasury stockTotal stockholders' equity289,700269,045Total liabilities and stockholders' equity$640,400 $593,255230© 2015 Pearson Education, Inc.

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FINANCIAL ACCOUNTING

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Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Case 7.1 Anne Aylor Inc. Determination of Planning Materiality and Performance Materiality by Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt

Please answer what is required number 1 and 2

REQUIRED

[1] Review Exhibits 1 and 2; audit memos G-3 and G-4; and audit schedules G-5, G-6 and G-7. Based on your review, answer each of the following questions:

[a] Why are different materiality bases considered when determining planning materiality?

[b] Why are different materiality thresholds relevant for different audit engagements?

[c] Why is the materiality base that results in the smallest threshold generally used for planning purposes?

[d] Why is the risk of management fraud considered when determining performance materiality?

[e] Why might an auditor not use the same performance materiality amount or percentage of

account balance for all financial statement accounts?

[f] Why does the combined total of individual account performance materiality commonly exceed the estimate of planning materiality?

[g] Why might certain trial balance amounts be projected when considering planning materiality?

[2] Based on your review of the Exhibits (1 and 2) and audit memos (G-3 and G-4), complete audit schedules G-5, G-6 and G-7.

Case 8.1 Laramie Wire Manufacturing Using Analytical Procedures in Audit Planning Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt

Please do answer what is required and the professional judgment question

REQUIRED

[1] Perform analytical procedures to help you identify relatively risky areas that indicate the need for further attention during the audit, if any.

[2] Focus specifically on each of the following balance-related management assertions for the inventory account: existence, completeness, valuation, and rights and obligations. Link any risks you identified for this account in question 1 to the related management assertion. Briefly explain identified risks for the inventory account that require further attention, if any.

PROFESSIONAL JUDGMENT QUESTION

It is recommended that you read the Professional Judgment Introduction found at the beginning of this book prior to responding to the following question.

[3] Why might an auditor be likely to adopt a client's judgment frame in performing preliminary analytical procedures, and how might that frame affect her or his evaluation of the findings from the procedures that were performed?

More information can be view in this link

chrome://external-file/1376815_1_auditing-cases-2.3.pdf

Section 7: Planning Materiality
Anne Aylor, Inc.
Planning Materiality Assessment
Year Ended: January 31, 2015
Reference
G5
Prepared by:
Date:
Reviewed by:
Primary Users of Financial Statements (list):
Materiality Bases (in thousands):
Fiscal 2014 Fiscal 2015
Actual
Financial
Planning Materiality Levels
Lower Limit
Projected
Financial
Upper Limit
Dollar
Amount
Statement
Statement
Dollar
Base
Amounts
Amounts
Percent
Amount
Percent
come Before Taxe
Net Revenues
Current Liabilities
Current Assets
Total Assets
2
0.5
2
2
7
2
7
0.5
2
Planning Materiality (in thousands):
Explanation:
228
© 2015 Pegrson Education. Inc.
Case 7.1: Anne Aylor, Inc.
Anne Aylor, Inc.
Performance Materiality Assessment
Year Ended: January 31, 2015
Reference:
G 6
Prepared by:
Date:
Reviewed by:
Likelihood of Management Fraud (check one):
Low Likelihood of Management Fraud
Reasonably Low Likelihood of Management Fraud
Moderate Likelihood of Management Fraud
Performance Materiality (in thousands):
Planning Materiality:
Multiplication Factor (0.75 if low likelihood of management fraud, 0.50 if reasonably
low likelihood of management fraud, and 0.25 if moderate likelihood of management
fraud).
Is
Performance Materiality (in thousands)
Specific Accounts Requiring Lower Performance Materiality:
Performance
Materiality
Account
Explanation:
Explanation:
Explanation:
Explanation:
Explanation:
Explanation:
© 2015 Pearson Education, Inc.
229

Section 7: Planning Materiality
Anne Aylor, Inc.
Reference:
G 7
Planning Materiality Financial Information
Year Ended: January 31, 2015
Prepared by:
Date:
Reviewed by:
1/31/2015
2/1/2014
All amounts are in thousands
Projected
Actual
Net sales
$
1,305,600 $
1,243,788
Cost of sales
596,700
573,727
Gross margin
Selling, general and administrative expenses
Operating income/(loss
Interest income
Interest expense
670,061
708,900
604,600
585,225
104,300
84,836
700
636
1,100
103,900
41,400
1,009
Income/(loss) before income taxes
Income tax provision/(benefit)
Net income/(loss)
84,463
33,686
$
62,500 $
50,777
Assets
Current assets
Cash and cash equivalents
$
124,200 $
115,845
12,892
137,647
Accounts receivable
13,900
Merchandise inventories
148,600
Refundable income taxes
4,500
4,165
17,900
38,000
347,100
Deferred income taxes
16,572
Prepaid expenses and other current assets
35,199
Total current assets
322,320
254,475
Property and equipment, net
Deferred income taxes
275,500
4,100
13,700
3,790
Other assets
12,670
Total assets
640,400
593,255
Liabilities
Current liabilities
Accounts payable
$
62,800 $
58,165
Accrued salaries and bonus
25,779
27,800
23,800
Accrued tenancy
22,014
Gift certificates and merchandise credits redeemable
30,600
27,654
Accrued expenses and other current liabilities
60,200
55,768
Total current liabilities
205,200
189,380
Deferred lease costs
102,100
94,593
Deferred income taxes
21
Long-term performance compensation
Other liabilities
9,600
33,800
8.877
31,339
Total liabilities
350,700
324,210
Stockholders' equity
Common stock and paid in capital
Retained earnings
Accumulated other comprehensive loss
466,300
432,080
483,000
(1,800)
(657,800)
447,556
(1,652)
(608,939)
Treasury stock
Total stockholders' equity
289,700
269,045
Total liabilities and stockholders' equity
$
640,400 $
593,255
230
© 2015 Pearson Education, Inc.

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