This question is from Auditing and Assurance Services 16th Edition, Chapter 9, 9-39

Auditing and Assurance Services 16th Edition.pdf (page 336 of 898) Q Search 9-39 (OBJECTIVES 9-5.6, 9-7, H) Pamela Albright is the manager of the audit of Stanton Enterprises, a public company that manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2016 audit and is considering an appropriate amount for overall financial statement materiality, what performance materiality should be set for the financial statement accounts, and the appropriate inherent risks. Summary financial statement information is shown in Figure 9-6 (p. 293). Additional relevant plan- ning information is summarized next. 1. Stanton has been a client for 4 years, and Albright's firm has always had a good rela- tionship with the company. Management and the accounting people have always been cooperative, honest, and positive about the audit and financial reporting. No material misstatements were found in the prior years' audits. Albright's firm has monitored the relationship carefully, because when the audit was obtained, Leonard Stanton, the CEO, had the reputation of being a "high-flyer" and had been through bankruptcy at an earlier time in his career runs the company in an autocratic way, primarily because of a somewhat con- olling personality. He believes that it is his job to make all the tough decisions. He delegates responsibility to others but is not always willing to delegate a commensurate amount of authority 3. The industry in which Stanton participates has been in a favorable cycle the past few and that trend is continuing in the current year. Industry profits are years, favorable, and there are no competitive or other apparent threats on the horizon. reasonably 4. Internal controls for Stanton are evaluated as reasonably effective for all cycles but not unusually strong. Although Stanton supports the idea of control, Albright has been disappointed that management has continually rejected Albright's rec to improve its internal audit function. tion 5. Stanton has a contract with its employees that ifearnings before taxes, intere and pension cost exceed $7.8 million for the year, an additional contribution must be made to the pension fund equal to 5% of the excess. Required a. You are to play the role of Pamela Albright in the 12-31-16 audit of Stanton Enterprises. Make a preliminary judgment of materiality and determine perfor- mance materiality for the financial statement accounts. Prepare an audit s chedule thoning rod idetdations. Instructor option: prepare the schedule using an elec b. Make an acceptable audit risk decision for the current year as high, medium, or low, . Perform anl procedures for Stanton Enterprises that woll help you identiy and support your answer. accounts that may require additional evidence in the current year's audit. Document the analytical procedures you perform and your conclusions. (Instructor option: use an electronic spreadsheet to calculate analytical procedures.) MacBook Pro Auditing and Assurance Services 16th Edition.pdf (page 336 of 898) Q Search 9-39 (OBJECTIVES 9-5.6, 9-7, H) Pamela Albright is the manager of the audit of Stanton Enterprises, a public company that manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2016 audit and is considering an appropriate amount for overall financial statement materiality, what performance materiality should be set for the financial statement accounts, and the appropriate inherent risks. Summary financial statement information is shown in Figure 9-6 (p. 293). Additional relevant plan- ning information is summarized next. 1. Stanton has been a client for 4 years, and Albright's firm has always had a good rela- tionship with the company. Management and the accounting people have always been cooperative, honest, and positive about the audit and financial reporting. No material misstatements were found in the prior years' audits. Albright's firm has monitored the relationship carefully, because when the audit was obtained, Leonard Stanton, the CEO, had the reputation of being a "high-flyer" and had been through bankruptcy at an earlier time in his career runs the company in an autocratic way, primarily because of a somewhat con- olling personality. He believes that it is his job to make all the tough decisions. He delegates responsibility to others but is not always willing to delegate a commensurate amount of authority 3. The industry in which Stanton participates has been in a favorable cycle the past few and that trend is continuing in the current year. Industry profits are years, favorable, and there are no competitive or other apparent threats on the horizon. reasonably 4. Internal controls for Stanton are evaluated as reasonably effective for all cycles but not unusually strong. Although Stanton supports the idea of control, Albright has been disappointed that management has continually rejected Albright's rec to improve its internal audit function. tion 5. Stanton has a contract with its employees that ifearnings before taxes, intere and pension cost exceed $7.8 million for the year, an additional contribution must be made to the pension fund equal to 5% of the excess. Required a. You are to play the role of Pamela Albright in the 12-31-16 audit of Stanton Enterprises. Make a preliminary judgment of materiality and determine perfor- mance materiality for the financial statement accounts. Prepare an audit s chedule thoning rod idetdations. Instructor option: prepare the schedule using an elec b. Make an acceptable audit risk decision for the current year as high, medium, or low, . Perform anl procedures for Stanton Enterprises that woll help you identiy and support your answer. accounts that may require additional evidence in the current year's audit. Document the analytical procedures you perform and your conclusions. (Instructor option: use an electronic spreadsheet to calculate analytical procedures.) MacBook Pro