Question
I need help estimating the dollar amount of potential misstatements for an assignment. It is pretty long so, I will just post what I think
I need help estimating the dollar amount of potential misstatements for an assignment. It is pretty long so, I will just post what I think is needed. I prepared a common-size income statement for the company in Excel and found accounts I think have potential misstatements. If I have those percentages for three years how do I calculate that potential misstatement?
Ex: Depreciation Expense is 3.54% of net sales with 5,336,783 in 2016. It is 3.12% in 2015 with 4,642,982. Finally, in 2014 it is 3.02% with 4,367,565. In 2016 sales are 150,918,731. Sales Returns and Allowances is 181,103. So I calculated Net Sales to be 150,737,628 for 2016.
The formula for this question would be (3.54-3.12)*Total Sales of 2016, right?.
So this would be (3.54-3.12)*150,737,628=63,309,803.76, if I am understanding correctly.
However, I am still confused about why. This number seems very high for the potential misstatement when the account only has 5,336,783 in 2016.
I have to estimate these for a lot of different accounts, so any help is appreciated to help me understand.
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