Question
Ana Dinh used 0.5 to 5 percent of gross profit in determining materiality of $70,000 in her audit of XYZ Inc., a company that builds
Ana Dinh used 0.5 to 5 percent of gross profit in determining 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 choices 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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