Arens15e_Ch9solutions - Chapter 9 Materiality and Risk...

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Chapter 9 Materiality and Risk Multiple Choice Questions From CPA Examinations 9-23 a. (4) b. (1) c (1) 9-24 a. (3) b. (4) c. (3) 9-25 a. (4) b. (1) c. (1) Discussion Questions And Problems 9-28 a. The profession has not established clear-cut guidelines as to the appropriate preliminary estimates of materiality. These are matters of the auditor’s professional judgment. The illustrative materiality guidelines in Fig 9-2 (p. 251) are used in applying materiality for the problem. Other guidelines may be equally acceptable. STATEMENT COMPONENT PERCENT GUIDELINES DOLLAR RANGE (IN MILLIONS) Earnings from continuing operations before taxes Current assets Current liabilities Total assets 3 - 6% 3 - 6% 3 - 6% 1 - 3% $12.5 - $ 25.1 $67.6 - $135.2 $36.5 - $72.9 $38.6 - $115.8 9-1
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b. As we discussed there are varied (but similar) solutions (this is one possible solution similar to our class discussion): Assets Current Assets: Cash 39,683 1,000 Temporary investments 123,421 0 Receivables 899,752 10,500 Inventories 1,124,149 13,000 Deferred income tax 9,633 0 Prepaids 57,468 500 2,254,106 PP&E 1,393,902 4,000 Investments in affiliates 112,938 1,000 GW & other intangibles 99,791 1,000
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