L3 Notes_Part_9 - Unprofitable engagements Benefits:...

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Problem 3-31 Murphy & Johnson is a manufacturer of small motors for lawnmowers, tractors, and snowmobiles. The components of its financial statements are: (1) net income before operations = $ 21 million; (2) total assets = $550 million; and (3) total revenues = $775 million. A. Planning materiality? B. Tolerable Misstatement? During the course of the audit, M&J’s firm detected two misstatements that aggregated to an overstatement of net income of $1.25 million. Evaluate and render your judgment.
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Business Risk to the Auditor Litigation Loss of professional reputation Regulatory sanctions
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Unformatted text preview: Unprofitable engagements Benefits: specialization, noncalendar Y/E client, Leader in industry, big fee (e.g., utility), glamorous client or location Business [or Engagement] Risk: The likelihood that an auditor will suffer an economic loss due to association with a specific client. W.R. Knechel Business Risk to the Auditor The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs. The most important thing to do if you find yourself in a hole is to stop digging. Warren Buffet W.R. Knechel...
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L3 Notes_Part_9 - Unprofitable engagements Benefits:...

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