Since King and Company faced a materiality question while forming its 2011 audit opinion for Lakeside Company. The best way for the auditor should evaluate the materiality of the $186,000 investment loss in their financial statements is by having the CPA firm of King and Company setting a preliminary judgment of materiality; to combined the amount of misstatement in the financial statements that would be considered material. As described in the case, King and Company were very aware that $186,000 investment in the store 6 was an impairment issue due to they were holding the store 6 as part of their business where it was located in a worthless building in a failed shopping center. Which leave me to this question, the materiality level guidelines
…show more content…
For example, the auditor can take the total estimates in sample/ divided by the same, times the population to get or = the direct projection estimate of misstatement. According to the AU-C, 320 paragraph A14 described the performance materiality by “Planning the audit solely to detect individual material misstatements overlooks the fact that the aggregate of individually immaterial misstatements may cause the financial statements to be materially misstated and leaves no margin for possible undetected misstatements.”[1] This means that the auditor should implement a performance materiality to reduce to an appropriately low level the probability of misstatements in that particular class of transactions or account balance. Yes, I do believe that the possible impairment of the investment in the sixth store is material to the Lakeside Company because the company only has a net worth of fewer than one million dollars. As described in the AU-C Section 320 paragraph 10 that if “…one or more particular classes of transaction, account balance or disclosures exist for which misstatements of lesser amounts than materiality for financial statements as a whole could reasonably be expected to influence the economic decisions of the users…” [1] As explained in the quote, users of the
For example, the auditor can take the total estimates in sample/ divided by the same, times the population to get or = the direct projection estimate of misstatement. According to the AU-C, 320 paragraph A14 described the performance materiality by “Planning the audit solely to detect individual material misstatements overlooks the fact that the aggregate of individually immaterial misstatements may cause the financial statements to be materially misstated and leaves no margin for possible undetected misstatements.”[1] This means that the auditor should implement a performance materiality to reduce to an appropriately low level the probability of misstatements in that particular class of transactions or account balance. Yes, I do believe that the possible impairment of the investment in the sixth store is material to the Lakeside Company because the company only has a net worth of fewer than one million dollars. As described in the AU-C Section 320 paragraph 10 that if “…one or more particular classes of transaction, account balance or disclosures exist for which misstatements of lesser amounts than materiality for financial statements as a whole could reasonably be expected to influence the economic decisions of the users…” [1] As explained in the quote, users of the