Hasbro Discussion Case Assume you're the senior auditor for KPMG and your audit client is Hasbro (NASDAQ:HAS) who makes toys and games. Hasbro had an exceptional FYE 2020 reporting a profit of $223m, a 57% reduction over 2019, primarily from COVID and the earlier success of Baby Yoda. As of 12/31/20, Hasbro has 27,000 active accounts receivable customers who only purchase merchandise on account, mostly toy stores, with an accounts receivable balance ranging in value from $120 to larger amounts (e.g., Target at $274m and Wal-Mart at $185m). The audit team has elected to use statistical sampling in testing the accounts receivable. The staff accountant selected a pre-sample of 100 random accounts and sent confirmations. The 100 accounts had an average book value balance of $47,140, per Hasbro's accounts receivable subsidiary ledger. The audit procedure produced 80 returned confirmation letters with an average balance of $49,400. Of those 80, 76 had no exceptions noted, however four had issues. Balance per Acc/Rec Acc/Rec per Customer Subsidiary Ledger Confirmation Explanation for Number as of 12/31/20 as of 12/31/20 Exception {Client's Balance} Customer's Balance} Client pricing error on two invoices based 5523 $2,728 $2,498 upon the customer's purchase order and client's appropriate price listings. 13314 $53,429 $0 14556 $21,497 $12,497 Customer mailed check on 12/29/20, check recorded in cash receipts journal on 1/4/21 (M), part of 1/5/21 (T) daily deposit. Client had a transposition error in the sales journal. The exception was noted in the first two digits. The Accounts Receivable Subsidiary ledger was corrected 1/12/21. Customer returned $12,199 of damaged merchandise on 12/24/20, counted in ending inventory on 12/31/20, and credit was issued on 1/6/21. 22782 $115,311 $103,112 TOTAL $192,965 $118,107 KPMG has audited Hasbro since 1964 and seldom had an accounting or auditing dispute over the past five decades. Given this history, the audit partner has decided that all audit conclusions may be stated at 90% confidence and that there can be a 1.5% materiality level for accounts receivable. ASSETS 4,580,369 1,410,597 446,105 310,450 6,747,521 382,248 494,584 646,305 584,970 1,725,859 8,855,628 Current assets Cash and cash equivalents 1,449,676 Accounts receivable, less allowance for credit losses of $28,100 in 2020 and $17,200 in 2019 1,391,726 Inventories 395,633 Prepaid expenses and other current assets 609,610 Total current assets 3,846,645 Property, plant and equipment, net 489,041 Other assets Goodwill 3,691,709 Other intangibles, net 1,530,835 Other 1,260,155 Total other assets 6,482,699 Total assets $ 10,818,385 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings 6,642 Current portion of long-term debt 432,555 Accounts payable 425,500 Accrued liabilities 1,538,644 Total current liabilities 2,403,341 Long-term debt 4,660,015 Other liabilities 793,866 Total liabilities 7,857,222 Shareholders' equity Common stock of $0.50 par value. Authorized 600,000,000 shares; issued 220,286,736 shares as of 2020 and 2019 110,143 Additional paid-in capital 2,329,064 Retained earnings 4,204,184 Accumulated other comprehensive loss (154,905) Treasury stock, 82,979,403 and 83,424,129 shares in 2020 and 2019 (3,551,749) Total shareholders' equity 2,936,737 503 343,927 912,652 1,257,082 4,046,457 556,559 5,860,098 110,143 2,275,726 4,354,619 (184,220) (3,560,738) 2,995,530 HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Years Ended in December 2020 2019 2018 $ 5,465,443 4,720,227 4,579,646 1,718,888 387,056 569,981 259,522 412,730 1,807,849 85,585 414,549 262, 156 413,676 1,850,678 43,906 351,660 246,165 439,922 28,703 1,287,560 47,259 144,746 1,252,140 1,037,103 218,566 (Thousands of Dollars Except Per Share Data Net revenues Costs and expenses: Cost of sales Program cost amortization Royalties Product development Advertising Amortization of intangible assets Selling, distribution and administration Acquisition and related costs Total costs and expenses Operating profit Non-operating expense (income): Interest expense Interest income Other income, net Total non-operating expense, net Earnings before income taxes Income taxes Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Hasbro, Inc. 4,248,594 4,963,629 501,814 4,068,177 652,050 331,052 201,130 (7,424) (13,954) 179,752 322,062 96,621 101,878 (30,107) (13,931) 57,840 594,210 90,826 (22,357) (7,819) 60,650 270,402 49,968 73,756 225,441 520,454 220,434 2,922 $ 222,519 520,454 220,434 Per common share Net earnings attributable to Hasbro, Inc. Basic $ 1.62 4.07 1.75 Diluted $ 1.62 4.05 1.74 $ Cash dividends declared 2.72 2.72 2.52 What is the auditor's best estimate of the true value of accounts receivable based upon the pre-sample? a. Client's Book Value of Presample: $ b. Audited Value of Presample: $ c. Auditor's Best Estimate of Population: $ d. Desired Game Plan: Upper Bound d $ Lower Bound $ e. Graph the findings: Hasbro Discussion Case Assume you're the senior auditor for KPMG and your audit client is Hasbro (NASDAQ:HAS) who makes toys and games. Hasbro had an exceptional FYE 2020 reporting a profit of $223m, a 57% reduction over 2019, primarily from COVID and the earlier success of Baby Yoda. As of 12/31/20, Hasbro has 27,000 active accounts receivable customers who only purchase merchandise on account, mostly toy stores, with an accounts receivable balance ranging in value from $120 to larger amounts (e.g., Target at $274m and Wal-Mart at $185m). The audit team has elected to use statistical sampling in testing the accounts receivable. The staff accountant selected a pre-sample of 100 random accounts and sent confirmations. The 100 accounts had an average book value balance of $47,140, per Hasbro's accounts receivable subsidiary ledger. The audit procedure produced 80 returned confirmation letters with an average balance of $49,400. Of those 80, 76 had no exceptions noted, however four had issues. Balance per Acc/Rec Acc/Rec per Customer Subsidiary Ledger Confirmation Explanation for Number as of 12/31/20 as of 12/31/20 Exception {Client's Balance} Customer's Balance} Client pricing error on two invoices based 5523 $2,728 $2,498 upon the customer's purchase order and client's appropriate price listings. 13314 $53,429 $0 14556 $21,497 $12,497 Customer mailed check on 12/29/20, check recorded in cash receipts journal on 1/4/21 (M), part of 1/5/21 (T) daily deposit. Client had a transposition error in the sales journal. The exception was noted in the first two digits. The Accounts Receivable Subsidiary ledger was corrected 1/12/21. Customer returned $12,199 of damaged merchandise on 12/24/20, counted in ending inventory on 12/31/20, and credit was issued on 1/6/21. 22782 $115,311 $103,112 TOTAL $192,965 $118,107 KPMG has audited Hasbro since 1964 and seldom had an accounting or auditing dispute over the past five decades. Given this history, the audit partner has decided that all audit conclusions may be stated at 90% confidence and that there can be a 1.5% materiality level for accounts receivable. ASSETS 4,580,369 1,410,597 446,105 310,450 6,747,521 382,248 494,584 646,305 584,970 1,725,859 8,855,628 Current assets Cash and cash equivalents 1,449,676 Accounts receivable, less allowance for credit losses of $28,100 in 2020 and $17,200 in 2019 1,391,726 Inventories 395,633 Prepaid expenses and other current assets 609,610 Total current assets 3,846,645 Property, plant and equipment, net 489,041 Other assets Goodwill 3,691,709 Other intangibles, net 1,530,835 Other 1,260,155 Total other assets 6,482,699 Total assets $ 10,818,385 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings 6,642 Current portion of long-term debt 432,555 Accounts payable 425,500 Accrued liabilities 1,538,644 Total current liabilities 2,403,341 Long-term debt 4,660,015 Other liabilities 793,866 Total liabilities 7,857,222 Shareholders' equity Common stock of $0.50 par value. Authorized 600,000,000 shares; issued 220,286,736 shares as of 2020 and 2019 110,143 Additional paid-in capital 2,329,064 Retained earnings 4,204,184 Accumulated other comprehensive loss (154,905) Treasury stock, 82,979,403 and 83,424,129 shares in 2020 and 2019 (3,551,749) Total shareholders' equity 2,936,737 503 343,927 912,652 1,257,082 4,046,457 556,559 5,860,098 110,143 2,275,726 4,354,619 (184,220) (3,560,738) 2,995,530 HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Years Ended in December 2020 2019 2018 $ 5,465,443 4,720,227 4,579,646 1,718,888 387,056 569,981 259,522 412,730 1,807,849 85,585 414,549 262, 156 413,676 1,850,678 43,906 351,660 246,165 439,922 28,703 1,287,560 47,259 144,746 1,252,140 1,037,103 218,566 (Thousands of Dollars Except Per Share Data Net revenues Costs and expenses: Cost of sales Program cost amortization Royalties Product development Advertising Amortization of intangible assets Selling, distribution and administration Acquisition and related costs Total costs and expenses Operating profit Non-operating expense (income): Interest expense Interest income Other income, net Total non-operating expense, net Earnings before income taxes Income taxes Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Hasbro, Inc. 4,248,594 4,963,629 501,814 4,068,177 652,050 331,052 201,130 (7,424) (13,954) 179,752 322,062 96,621 101,878 (30,107) (13,931) 57,840 594,210 90,826 (22,357) (7,819) 60,650 270,402 49,968 73,756 225,441 520,454 220,434 2,922 $ 222,519 520,454 220,434 Per common share Net earnings attributable to Hasbro, Inc. Basic $ 1.62 4.07 1.75 Diluted $ 1.62 4.05 1.74 $ Cash dividends declared 2.72 2.72 2.52 What is the auditor's best estimate of the true value of accounts receivable based upon the pre-sample? a. Client's Book Value of Presample: $ b. Audited Value of Presample: $ c. Auditor's Best Estimate of Population: $ d. Desired Game Plan: Upper Bound d $ Lower Bound $ e. Graph the findings