Ann Taylor Stores Corporation (Ann Taylor) is a leading national specialty retailer of better-quality women's apparel, shoes, and accessories sold primarily under the "Ann Taylor" and "Ann Taylor Loft" brand names. \({ }^{1}\) Ann Taylor is a highly recognized national brand that defines a distinct fashion point of view. Ann Taylor merchandise represents classic styles, updated to reflect current fashion trends. Company stores offer a full range of career and casual separates, dresses, tops, weekend wear, shoes and accessories coordinated as part of a total wardrobing strategy. The wardrobing strategy is reinforced with the company's emphasis on customer service. Company sales associates are trained to assist customers in merchandise selection and wardrobe coordination, helping them achieve the "Ann Taylor" look while maintaining the customers' personal styles. Net revenue for fiscal 2001 was \(\$ 1.3\) billion and net income was \(\$ 29\) million.

At the end of fiscal 2001, Ann Taylor operated approximately 538 retail stores located in 42 states, the District of Columbia, and Puerto Rico under the names Ann Taylor, Ann Taylor Loft and Ann Taylor Factory Store. The company's core business consists of the 342 Ann Taylor stores that focus on relatively affluent, fashion-conscious professional women with limited shopping time. These stores are located primarily in regional malls and upscale specialty retail centers. The company also operates 186 Ann Taylor Loft stores that cater to more price sensitive women with a more relaxed lifestyle and work environment. Ann Taylor Loft stores are located primarily in regional malls, strip shopping centers, and urban and village street locations. The remaining 10 stores operate under the Ann Taylor Factory name and serve as a brand-appropriate clearance vehicle for merchandise from both the Ann Taylor and Ann Taylor Loft stores.
Substantially all of the company's merchandise is developed in-house by its product design and development teams. Production of merchandise is sourced to 216 independent manufacturers located in 25 countries. Approximately 27 percent, 16 percent, 13 percent, and 9 percent of the company's merchandise is manufactured in China, Korea, Philippines, and Hong Kong, respectively. Merchandise is distributed to the company's retail stores through a single distribution center, located in Louisville, Kentucky.
Ann Taylor stock trades on The New York Stock Exchange and Ann Taylor is required to have an annual audit pursuant with the 1934 Securities and Exchange Act. As of the close of business on March 1, 2002 Ann Taylor had 29,316,909 shares of common stock outstanding with a trading price of \(\$ 40.23\).

BACKGROUND INFORMATION ABOUT THE AUDIT
Your firm, Smith and Jones, PA., is in the initial planning phase for the fiscal 2002 audit of Ann Taylor Stores Corporation. As the audit manager, you have been assigned responsibility for determining planning materiality and tolerable misstatement for key financial statement accounts. Your firm's materiality and tolerable misstatement guidelines have been provided to assist you with this assignment (see Exhibit 1).
Donna Fontain, the audit partner, has performed a preliminary analysis of the company and its performance and believes the likelihood of management fraud is very low. Donna's initial analysis of the company's performance is documented in the memo referenced as \(G 3\) (top right hand corner of the document). Additionally, Donna has documented current events/issues noted while performing the preliminary analysis in a separate memo, G 4. You have recorded the fiscal 2001 balance sheet numbers on audit schedules G 6-1 and G 6-2. Selected information from the company's fiscal 2001 notes to the financial statements have been provided in Exhibit 2. Assume no material misstatements were discovered during the fiscal 2001 audit.

REQUIREMENTS

Review Exhibits 1 and 2, audit memos (G 3 and G 4), and audit schedules (G 5, G 61, and G 6-2). Based on your review, complete audit schedules \(G 5, G 6-1\), and \(G 6-\) 2. Your instructor will indicate how you should obtain the projected February 1, 2003 (fiscal 2002) balances.