Question

The auditor of Kiely Manufacturing is concerned about the number and magnitude of year-end adjustments that are made annually when the financial statements of Kiely Manufacturing are prepared. Specifically, the auditor suspects that the management of Kiely Manufacturing is using discretionary write-offs to manipulate the reported net income. To check this, the auditor has collected data from 25 companies that are similar to Kiely Manufacturing in terms of manufacturing facilities and product lines. The cumulative reported third-quarter income and the final net income reported are listed in the file P10_55.xlsx for each of these 25 companies.
If Kiely Manufacturing reports a cumulative third-quarter income of $2,500,000 and a preliminary net income of $4,900,000, should the auditor conclude that the relationship between cumulative third-quarter income and the annual income for Kiely Manufacturing differs from that of the 25 companies in this sample? Explain why or why not.



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  • CreatedApril 01, 2015
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