Question
Ana Dinh used 0.5 to 5 percent of gross profit in determining overall planning materiality of $70,000 in her audit of XYZ Inc., a company
Ana Dinh used 0.5 to 5 percent of gross profit in determining overall planning materiality of $70,000 in her audit of XYZ Inc., a company that builds replacement engines for tractors and combines. She used the $70,000 amount as her planning materiality, identifying account balances and transactions to be tested. She also used materiality as a guide when deciding on the appropriate audit opinion in her report. Suppose Ana initially reviewed parts inventory account #1026411 and found that none of the account transactions exceeded $45,000. Which of the following describes performance materiality and the auditing of the inventory account? (several answers may be correct).
a) None of the transactions in the inventory accounts need to be examined as the individual transactions are below $45,000.
b) Performance materiality will likely be set between $42,000 and $59,500 supporting the requirement to examine individual transactions.
c) Individual transactions still need to be examined as individual transactions could total more than $70,000.
d) Performance materiality will likely be set between $22,000 and $39,500 supporting the decision to not test individual transactions.
e) The parts inventory account is deemed to be immaterial and no further work is required.
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