Agro Co. Case Solution
Q1: “Upload your completed spreadsheet for requirements 2 and 3 (i.e. WP 2-1 and WP 2-2).You need to download the spreadsheets, complete them, and then upload them as your submission. Follow the policy. No creativity is required.”
A: answer provided in the excel sheet.
Q2: “Refer to the Total Performance Materiality Assigned in WP 2-2. Explain why the auditor would allocate more than the Computed Overall Planning Materiality amount (see WP 2-1) to the set of financial statement accounts. In other words, why would auditors permit the Total Performance Materiality Allocated amount to be greater than the Computed Overall Planning Materiality amount?”
A: The auditors would permit the Total Performance Materiality Allocated amount i.e. $2,113,180.16 to be greater than the Computed Overall Planning Materiality amounti.e.$449,612.80 because for Total Performance Materiality, materiality factor for various accounts have been considered separately. Based on this fact it could be said every account in accounting possess different attributes than others and involvement or level of risk in different accounts vary from lower to medium and to high extent.
Q3: “Assume the audit engagement team determined performance materiality to be $240,864 for each account above (note that this amount will likely not agree with the amounts you determined above). Evaluate each misstatement listed above at the financial statement account level to determine whether or not each would be considered material. Explain your rationale for each misstatement.”
A: A performance material amount is an amount which is used as benchmark by the auditors to determine the materiality level of the misstatements of a company. To calculate this amount the auditors consider the range of 30 to 75% of the overall planning materiality, for the publically traded companies the rate would be up to 50% whereas for these the company considered is public so the rate would be up to 50%.
As provided, the performance materiality amount is determined to be $240,864 based on the mentioned fact, the evaluation of each misstatement listed above at the financial statement account level is done below:
- Sales: $235,506:
Since the sales misstatement amount which is $235,506 is less than the performance material amount that is $240,864, so it would not be considered material. Also the cash misstatement amount is based on the result of a cash confirmation from a bank that was $258,046 less than the reported client balance. As provided in the Summary of Discovered Misstatements (Sales Account) it could be seen that other than$217,934.70 other amounts were misstated at a very minor level like $18,000 due to transportation error $(428.70) due to incorrect recording. It is also mentioned there that the difference of the $217,934.70 arose because of its recording in wrong according period.
- Cash: $258,046
Since the cash misstatement amount which is $258,046 is greater than the performance material amount that is $240,864, so it would be considered material. Also the cash misstatement amount is based on the result of a cash confirmation from a bank that was $258,046 less than the reported client balance……………………………
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