1. Establish Threshold for Unexpected Fluctuations To begin identifying accounts with unexpected fluctuations auditors must establish a threshold for account difference. All accounts whose actual 2016 unaudited account balance differs from the expected balance by a value greater than the threshold established will be shown in the charts below. As a general rule the threshold should not exceed materiality. For the purposes of this exercise we assume planning materiality is $3.1 million. Enter this value in the field below as 3,100. (Omit the "$" sign in your response.)

A. Set threshold for account difference in thousands $ 3100

2. Evaluate Threshold for Unexpected Fluctuations Lists of Balance Sheet and Income Statement accounts have been generated below based on your threshold for account difference. In the "Evaluation" column please identify 1 or 2 balance sheet and 1 or 2 income statement accounts where you believe the difference presents increased risk of material misstatement that may require a change in the nature, timing or extent of planned audit procedures. Please indicate possible reasons for the difference, potential risks, and suggested audit plan revisions.

A. Balance Sheet Accounts              Account Difference from Expectations             Evaluation

Cash and cash equivalents                                          $31,071 

Receivables, net                                                         ($5,568)

Inventory                                                                     $8,444

Other prepaid expenses                                               ($3,414)

Computer hardware and software                                  ($7,107)

Lines of credit                                                             ($3,892)

Accounts payable                                                       ($22,401)

Accrued liabilities                                                         $5,456

Income taxes payable                                                   $5,711

Deferred income taxes                                                 ($4,666)

Additional paid-in capital                                               $3,550

Accumulated other comprehensive income                    ($3,855)

Treasury stock, 6,654, 7,114, and 6,546 shares at cost, respectively      $23,926

 

B. Income Statement Accounts                Account Difference from Expectations               Evaluation

Net Sales                                                                      ($23,193)

Cost of sales                                                                  ($47,893)

Selling, general and administrative expenses                    ($18,851)

Income tax provision                                                        $10,864