In this mini$-$case you will determine overall materiality as well as tolerable misstatement amounts for balance sheet accounts of EarthWear Clothiers, Inc. Most auditing firms use a simple approach for establishing planning materiality and tolerable misstatement similar to the one illustrated in your textbook. This case illustrates such an approach, with some additional guidance from Willis & Adams relating to the amount of tolerable misstatement to allocate to various balance sheet accounts based on difficulty to audit and expected misstatement, and limiting the total amount of tolerable misstatement to about ten times materiality.

INSTRUCTIONS:

Following the Materiality Guidelines for Willis & Adams CPAs, complete all the necessary fields on Work Paper $3-7$ and $3-8.$ For your Convenience, EarthWear Financial Statements have been included for reference. Balance Sheet. Income Statement. Cash Flows. Shareholders Investments. Five$-$Year Financial Summary.