Assume that an auditor assesses a well-calibrated RR of 25-35,000 and uses the uniform distribution to model
Question:
Assume that an auditor assesses a well-calibrated RR of 25-35,000 and uses the uniform distribution to model the AccR over the RR. The auditor judges that acceptable AccR is 0.2 in this situation.
a. Give a numerical example of a materiality that results in a nirvana accounting estimate situation for the above RR. Is your materiality a specific materiality or an overall materiality?
b. Give an example of a materiality for which there exists a benchmark range with acceptable AccR = 0.2 at least at one point, but not at all points within RR, thereby solving Cockburn's problem.
c. Give an example of a materiality that results in a nightmare accounting estimate situation.
d. What should the auditor do about an auditee company's reported estimate in its financial statements that happens to be in a nightmare situation?
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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Auditing An International Approach
ISBN: 978-1259087462
7th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley