14 5 3 EARTHWEAR CLOTHIERS Identification of Accounts with Unexpected

14 5 3 earthwear clothiers identification of accounts

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(5-3)EARTHWEAR CLOTHIERSIdentification of Accounts with Unexpected FluctuationsDecember 31, 20141. Establish Threshold for Unexpected FluctuationsTo begin identifying accounts with unexpected fluctuations auditors must establish a thresholdfor account difference. All accounts whose actual 2014 unaudited account balance differs fromthe expected balance by a value greater than the threshold established will be shown in the charts below. As a general rule the threshold should not exceed materiality. For the purposes of this exercise we assume planning materiality is $3.1 million. Enter this value in the field below as 3100.A. Set threshold for account difference in thousands (e.g., 3100)$3,100 2. Evaluate Unexpected FluctuationsLists of Balance Sheet and Income Statement accounts have been generated below based on your threshold for account difference. In the "Evaluation" column please identify 2 or more A. Balance Sheet AccountsAccountDifference fromExpectationsEvaluationCash and cash equivalents$31,071 This difference could probably be explained by the fact that Earthwear has expanded its business for the last 3 years. Could be a potential problem if used in enticing stakeholders, and/or tax consequences with the IRS.Receivables, net($5,568)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Inventory$8,444 This difference could be explained by the fact that the company has grown for the last few years and they have enough physical inventories to fill another retailer. Any misstatement in inventory will be corrected when they do their physical inventory countat the end of the accounting period / year-end count. Total assets and R.E. will be misstated.Other prepaid expenses($3,414)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Computer hardware and software($7,107)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Lines of credit($3,892)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Accounts payable($22,401)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Accrued liabilities$5,456 Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Income taxes payable$5,711 Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Deferred income taxes($4,666)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.15
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Additional paid-in capital$3,550 Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.Accumulated other comprehensive income($3,855)Indicate possible reasons for difference, potential risks, and suggested audit plan revisions here.
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