Assignment:
Complete the following:
1) Set the preliminary judgment about materiality (PJ) for Stanton. Specifically:
a. List the users of the financial statements (bullet-point is fine)
b. List qualitative factors that may affect your decision (bullet-point is fine). - Do not have to do this question. The answers are given. Refer to the " Qualitative Factor" in the excel file.
c. Select an appropriate base (use 4.5% of the income before taxes, which is about $360,000 because that is the company policy), calculate the PJ ($360,000), include calculations and explain your reasoning for both, incorporating your answers for (a) and (b).
2) Allocate tolerable misstatement to the balance sheet accounts (use Excel file as template).
1. Using a reasonable statistical method, allocate the initial tolerable misstatement. Explain how you arrived at your numbers (i.e., explain the method, possibly include some calculations).
2. Using factors from the case adjust initial tolerable misstatements at the account- level and explain your reasons for doing so.
3) Perform preliminary analytical procedures on Stanton's financial statements; briefly highlight areas of potential concern for possible misstatements. This is not to be a detailed assessment, but is needed for your answer to the next component.
4) Based on the case information and your answers to the first three questions assess acceptable audit risk (in qualitative terms) and explain your answer.
Attachment:- Balance sheet and allocation worksheet.rar