Problem 2

Roger Company is a mid-size company located in the Midwest that handles the distribution of various home and garden products. You are part of the engagement team assigned to audit the financial statements of Roger Company. Roger Company has been a client of your firm for many years, and your firm has rarely encountered any problems with them. However, the engagement partner has made it very clear to you that there is no room for mistakes. Your tasks as one of the auditors on the engagement are outlined below and in other problems of the remaining chapters.

Please download the Roger Company ACL data files, found under Course-Wide Content, ACL Content folder on the Student Edition of your text's Online Learning Center, www.mhhe.com/messier9e. The Roger Company files are already in ACL format; however the files must first be extracted or "unzipped." After unzipping the files, click on FILE from the menu toolbar and use the OPEN PROJECT command to navigate to where you have saved the "Roger Company 9e" file and open the project.

Net income before taxes at Roger Company is stable, predictable, and representative of its size. Thus, the auditors at Roger Company calculate materiality to be 5 percent of net income before taxes. Net income before taxes at Roger Company for fiscal 2013 is $1,388,500. Determine materiality for the audit of Roger Company's 2013 financial statements. Use ACL to determine if the reported AR account balance, $487,000, is materially different from the detailed files in Rogers Company AR table. Define tolerable misstatement as 60 percent of materiality. What might cause differences between the number reported in the financial statements and the details in the file?