Stanton Enterprises Pamela Albright is the manager of the audit of Stanton Enterpises, a public company that manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2005 audit and is considering an appropriate amount for planning materiality, what tolerable misstatement should be allocated to the financial statement accounts, and the appropriate inherent risks. Summary financial statement information is shown in Figure A-1. Additional relevant planning information is summarized below. 1. Stanton has been a client for 4 years, and Albrights firm has always had a good relationship with the company. Management and the accounting people have always been cooperative, honest, and positive about the audit and financial reporting. No material misstatements were found in the prior years audit. Albrights firm has monitored the relationship carefully, because when the audit was obtained, Leonard Stanton, the CEO, had the reputation of being a high-flyer and had been through bankruptcy at an earlier time in his career. 2. Stanton runs the company in an autocratic way, primarily because of a somewhat controlling personality. He believes that it is his job to make all the tough decisions. He delegates responsibility to others but is not always willing to delegate a commensurate amount of authority. 3. The industry in which Stanton participates has been in a favorable cycle the past few years and that trend is continuing in the current year. Industry profits are reasonably favorable, and there are no competitive or other apparent threats on the horizon. 4. Internal controls for Stanton are evaluated as reasonably effective for all cycles but not unusually strong. Although Stanton supports the idea of control, Albright has been disappointed that management has continually rejected Albrights recommendation to establish an internal audit function. 5. Stanton has a contract with its employees that if earnings before taxes, interest expense, and pension cost exceed $7.8 million for the year, an additional contribution must be made to the pension fund equal to 5% of the excess. Required A. You are to play the role of Pamela Albright in the 12-31-05 audit of Stanton Enterprises. Make a preliminary judgment of materiality. Prepare an audit schedule showing your calculations. B. Make an acceptable audit risk decision for the current year as high, medium, or low, and support your answer (Explain) Document all conclusions. Consider financial and non-financial information. C. Perform analytical procedures (using ratio analysis, trend analysis, common-size financial statements, etc.) for Stanton Enterprises that will help you identify accounts that may require additional evidence in the current years audit. Document the analytical procedures you perform and your conclusions. Include supporting details and document all work, explanations, and conclusions. D. The evidence planning worksheet to decide tests of details of balances for Stantons accounts receivable is shown in Figure B-1. Use the information in the case and your conclusions in parts a-c to complete the following rows of the evidence planning worksheet: Acceptable audit risk, Inherent risk, and Analytical procedures. Make any assumptions you believe are reasonable and appropriate and document them

Use information given in the balance sheet to fill out the charts attached.

The first column is preliminary and second is audited

ancial Balance Sheet Statements Preliminar 12-31-13 Audited receivable s 243689 2-31-12 uncollectible accounts 3,544 009 33,981 4520902 215000) assets Total 8218.100 plant and equipment: 24,700 6057.002 lated depreciatio 2945.255 Total prop, plant and equipment 9,922,534 4.382, 775,911 562265 46623 200,000 345.000 517980365 S12,548,625 kcounts payable 2,141,552 2,526,789 150,000 Aoued liabilities 723,600 Federal income taxes payable 598,020 1,200,000 ament portion of long-term debt 759,000 240,000 Total current liabilities 240,000 4,455,152 5,123,809 Longterm debt equity. 960,000 Common stock 1,250,000 1,000,000 Additional paid in capital 2,469,921 1333,801 Retained earnings 8,845,292 3,891,015 Total stockholders' equity 2,565,213 6,224,816 Total liabilities and stockholders' equity S17,980,365 S12,548625 Combined Statement of Income and Retained Earnings Preliminary Audited 12-31-13 12-31-12 $43,994,93 $32,258,015 costof goods sold 24,197212 9,032,229 13,225,786 19797,719 Seling general, and administrative expenses 8,900,432 10,592221 Pension cost 865,030 1,117,845 04,220 hterest expense 83,376 9,869,682 Ital operating expenses 11,793,442 3356,104 Income before taxes 8,004,277 41,000 hoome tax expense 1,800,000 2,215,104 6204,277 2,675,911 3891,015 Beginning retained earnings 4,891,015 10095,292 (1,000,000) Diidends declared 1,250 3891,015 8845.292 trdng earnings retained