Panzero Bread is a major retailer of specialty sandwich items and baked goods. The following information represents
Question:
Panzero Bread is a major retailer of specialty sandwich items and baked goods. The following information represents the company’s financial position as of December 31, 202Y, and December 31, 202X.
The auditors have detected misstatements in accounts receivable in the past. The auditor knows that management is under considerable pressure to meet analyst expectations for EPS. Reducing EPS by even one penny would cause the trend in earnings to become even more negative than the unaudited financial numbers already reveal, and it would cause the company to miss analyst forecasts for EPS by just a small amount.
a. Use the three common benchmarks for making materiality judgments (net income, total assets, and net sales) to establish planning materiality for the financial statements overall.
b. What difficulties does the auditor face when the alternative benchmarks yield differing conclusions about planning materiality? What qualitative factors should the auditor consider in making the materiality judgment for this company?
c. Select the benchmark from those calculated in part (a) to use for planning materiality and provide your reasons.
Step by Step Answer:
Auditing A Risk Based Approach
ISBN: 9780357721872
12th Edition
Authors: Karla M Johnstone-Zehms, Audrey A. Gramling, Larry E. Rittenberg