Billy's Big Box, Incorporated (BBB) is a regional discount retailer that operates large discount stores in the southeastern United States. They compete directly in their markets with other "big box" stores. One hallmark of BBB is their generous return policy which allows customers to return any item at any time within 90 days for a full refund.BBB is also notable because they are much smaller in terms of number of stores - they only have 20 stores throughout the region. Similar to many retailers, BBB uses an end of January fiscal year end to allow for less uncertainty in holiday season sales returns.\ Although BBB allows customers great leniency in their return policy, their return rates have traditionally been in line with other retailers, and they estimate that approximately

5%

of their returns are fraudulent, which is also in line with other retailers. This makes estimation of their sales return allowances reasonably predictable, according to company management.\ BBB reports that historically, approximately

10%

of all sales are returned.

70%

of these returns occur in the month immediately following the sale,

25%

occur within the next month, and the remaining

5%

mostly happen in the third month. Later returns are immaterial since they are not according to policy.BBB estimates their returns using an "analysis of economic conditions, historical average returns, as well as a variety of other sources". Because this method is difficult to validate and is not as precise as your firm prefers, your firm has decided to test the estimate by preparing an estimate and comparing it to the client's using data collected from other sources on return rates, as well as using subsequent client information.\ Whenever an auditor uses Information Prepared by the Entity, that information must be tested for completeness and accuracy. For the purposes of the following exercises, please assume that your firm has already tested the completeness and accuracy of the Product Sales Summary and the Product Returns Summary and has determined that the amounts reported by the company are reasonable for purposes of your test of the sales return allowance account.

Billy's Big Box, Incorporated (BBB) is a regional discount retailer that operates large discount stores in the southeastern United States. They compete directly in their markets with other "big box" stores. One hallmark of BBB is their generous return policy which allows customers to return any item at any time within 90 days for a full refund.BBB is also notable because they are much smaller in terms of number of stores - they only have 20 stores throughout the region. Similar to many retailers, BBB uses an end of January fiscal year end to allow for less uncertainty in holiday season sales returns. Although BBB allows customers great leniency in their return policy, their return rates have traditionally been in line with other retailers, and they estimate that approximately 5% of their returns are fraudulent, which is also in line with other retailers. This makes estimation of their sales return allowances reasonably predictable, according to company management. BBB reports that historically, approximately 10% of all sales are returned. 70% of these returns occur in the month immediately following the sale, 25% occur within the next month, and the remaining 5% mostly happen in the third month. Later returns are immaterial since they are not according to policy.BBB estimates their returns using an "analysis of economic conditions, historical average returns, as well as a variety of other sources". Because this method is difficult to validate and is not as precise as your firm prefers, your firm has decided to test the estimate by preparing an estimate and comparing it to the client's using data collected from other sources on return rates, as well as using subsequent client information. Whenever an auditor uses Information Prepared by the Entity, that information must be tested for completeness and accuracy. For the purposes of the following exercises, please assume that your firm has already tested the completeness and accuracy of the Product Sales Summary and the Product Returns Summary and has determined that the amounts reported by the company are reasonable for purposes of your test of the sales return allowance account