The following are an income statements and balance sheets for General Foods Ltd.

REQUIRED
a. Use professional judgment in deciding on the preliminary judgment about materiality for profit, current assets, current liabilities and total assets. Your conclusions should be stated in terms of percentages and dollars.
b. Assume that you define materiality for this audit as a combined misstatement of operating profit before income tax of 10%. Also assume that you believe there is an equal likelihood of a misstatement of every account in the financial statements and that each misstatement is likely to result in an overstatement of profit. Allocate materiality to these financial statements as you consider appropriate.
c. Now, assume you have decided to allocate 75% of your preliminary judgment to accounts receivable, inventories and accounts payable because you believe all other accounts have a low inherent and control risk. How does this affect evidence accumulation on the audit?
d. Assume you complete the audit and conclude that your preliminary judgment about materiality for current assets, current liabilities and shareholders' equity has been met. The actual estimate of errors in profit exceeds your preliminary judgment. What should you do?

Transcribed Image Text:

Consolidated Income Statement for the year ended 30 June 20X0* 20X9* 20X8* Revenues Net sales Other income $8 351 149 59 675 8 410 824 $6 601 255 43 186 6 644 441 $5 959 587 52 418 6 012 005 Costs and expenses Cost of sales Marketing, general and administrative expenses Provision for loss on restructured operations Interest expense 5 197 375 2 590 080 64 100 141 662 7993 217 417 607 196 700 S 220 907 4 005 548 2 119 590 3 675 369 1828 169 Operating profit before income tax Income tax expense Operating profit after tax 46 737 6 171 875 472 566 217 200 s_255 366 38 546 5 542 084 469 921 214 100 $ 255 821 Consolidated Balance Sheet as at 30 June 20X0 20X9* Current assets Cash Temporary investments, including term deposits of $65 361 in 20X0 and $181 589 in 20X9 (at cost, which approximates market) Receivables, less allowances of $16 808 in 20X0 and $17 616 in 20X9 Inventories 39 683 $37 566 123 421 899 752 271 639 759 001 Finished product 680 974 443 175 57 468 2 244 473 550 407 353 795 35 911 2 008 319 Raw materials and supplies Prepaid expenses Total current assets Non-current assets Deferred tax asset Property, plant and equipment, at cost, less accumulated depreciation Investments in affiliated companies and sundry assets Goo Total non-current assets Total assets Current liabilities Notes payable Current portion of long-term debt Trade acoounts payable Accrued salaries, wages and leave provisions Income tax payable Other accrued liabilities Total current liabilities 9 633 1393 902 112 938 99 791 1 616 264 $3 860 737 10 468 1 004 455 83 455 23 145 1 121 523 $3 129 842 dwill and other intangible assets $280 238 64 594 359 511 112 200 76 479 321 871 1 214 893 $113 411 12 336 380 395 63 557 89 151 269 672 928 522 Non-current liabilities Long-term debt Other non-current liabilities Deferred tax liabili Total non-current liabilities Total liabilities Net assets 730 987 146 687 142 344 1 020 018 2 234 911 $1 625 826 390 687 80 586 119 715 590 988 1519 510 $1 610 332 ty Shareholders' equity Ordinary shares issued, 51 017 755 shares in 20XO and 50 992 410 in 20X9 Additional paid-up capital Foreign currency translation reserve Retained profits Shareholders equity 51 018 149 177 (76 572) 1 502 203 50 992 148 584 1410 756 $1 625 826 $%1 610 332