Following are statements of earnings and financial position for Wexler Industries. Required a. Use professional judgment in

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Following are statements of earnings and financial position for Wexler Industries.
Following are statements of earnings and financial position for Wexler
Following are statements of earnings and financial position for Wexler

Required
a. Use professional judgment in deciding on the preliminary judgment about materiality for earnings, current assets, current liabilities, and total assets. Your conclusions should be stated in terms of percents and dollars.
b. Assume that you define materiality for the financial statements as a whole as a combined misstatement of earnings from continuing operations before income taxes of 5%. Also assume that you believe there is an equal likelihood of a misstatement of every account in the financial statements, and each misstatement is likely to result in an overstatement of earnings. Allocate materiality to these financial statements as you consider appropriate.
c. As discussed in part b., net earnings from continuing operations before income taxes was used as a base for calculating materiality for the Wexler Industries audit. Discuss why most auditors use before-tax net earnings instead of after-tax net earnings when calculating materiality based on the income statement.
d. Now assume that you have decided to allocate 75% of your preliminary judgment to accounts receivable, inventories, and accounts payable because you believe all other accounts have a low risk of material misstatement. How does this affect evidence accumulation on the audit?
e. Assume that you complete the audit and conclude that your preliminary judgment about materiality for current assets, current liabilities, and total assets has been met. The actual estimate of misstatements in earnings exceeds your preliminary judgment. What should you do?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
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Auditing and Assurance services an integrated approach

ISBN: 978-0134065823

16th edition

Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan

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