In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements. To Define: Planning materiality and its practical application in audit.

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Answer 1

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Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

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Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?

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Answer 2

Question

Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

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Answer 3

Question

Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Expert Solution & Answer

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Answer 4

Question

Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Expert Solution & Answer

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Answer 5

Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Answer 6

Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

Answer 7

Chapter 7, Problem 3RQSC

a.

To determine

Introduction: In context of audit, materiality refers to the significance of an item or transaction in the books of accounts which have a direct bearing on the opinion of auditor and assessment of financial performance by users of financial statements.

To Define: Planning materiality and its practical application in audit.

Answer 8

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

Answer 9

b.

To determine

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

Answer 10

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

Answer 11

c.

To determine

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

Answer 12

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Answer 13

d.

To determine

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 7 - Prob. 1CYBK Ch. 7 - Prob. 2CYBK Ch. 7 - Prob. 3CYBK Ch. 7 - Prob. 4CYBK Ch. 7 - Prob. 5CYBK Ch. 7 - Prob. 6CYBK Ch. 7 - Prob. 7CYBK Ch. 7 - Prob. 8CYBK Ch. 7 - Prob. 9CYBK Ch. 7 - Prob. 10CYBK

Concept explainers

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Want to see the full answer?

Chapter 7 Solutions

Concept explainers

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit. To define: Performance materiality and its practical application.

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit. To define: Posting materiality and its application in audit.

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature. To Discuss: Impact of qualitative factors in quantitative materiality assessment.

Want to see the full answer?

Chapter 7 Solutions

Introduction: Performance materiality refers to the significance assigned to an individual category of item(s) or transaction(s) by the auditor during the course of audit.

To define: Performance materiality and its practical application.

Introduction: Posting materiality is that value of audit item or transaction which, if identified during audit, must be documented separately for subsequent consideration during the audit.

To define: Posting materiality and its application in audit.

Introduction: Qualitative factors are those non-monetary considerations which are significant in the process of audit and have a direct bearing on audit procedures, audit scope, extent and nature.

To Discuss: Impact of qualitative factors in quantitative materiality assessment.