Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common characteristics). A summary of these misstatements follows. (To illustrate, in 2015, the misstatements would have reduced net income by $13,200 if corrected:) Year 2015 2016 2017 2018 2019 Effect on Net Income $ (13,200) 5,000 (9,250) (2,000) 1,000 Effect on Assets $ (20,000) 12,000 (11,000) (5,500) 1,000 Effect on Effect on Liabilities Equity $(13,200) $ (6,800) 7,000 (1,750) (3,500) 0 5,000 (9,250) (2,000) 1,000 During the most recent audit, Rivers concluded that service revenue totaling $11,000 was recognized as of December 31, 2020 and it did not meet the criteria for recognition until 2021. When Rivers discussed this issue with Chris Turner, Charger Company's chief financial officer, Turner asked Rivers about the performance materiality level used in the audit, which was $25,000. Upon learning of this, Turner remarked, "Then there's no need to worry... it's not a material amount. Why should we bother with this item?". Under each method, what is the minimum amount of adjustment Rivers would propose to Chargers Company's financial statements?
Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common characteristics). A summary of these misstatements follows. (To illustrate, in 2015, the misstatements would have reduced net income by $13,200 if corrected:) Year 2015 2016 2017 2018 2019 Effect on Net Income $ (13,200) 5,000 (9,250) (2,000) 1,000 Effect on Assets $ (20,000) 12,000 (11,000) (5,500) 1,000 Effect on Effect on Liabilities Equity $(13,200) $ (6,800) 7,000 (1,750) (3,500) 0 5,000 (9,250) (2,000) 1,000 During the most recent audit, Rivers concluded that service revenue totaling $11,000 was recognized as of December 31, 2020 and it did not meet the criteria for recognition until 2021. When Rivers discussed this issue with Chris Turner, Charger Company's chief financial officer, Turner asked Rivers about the performance materiality level used in the audit, which was $25,000. Upon learning of this, Turner remarked, "Then there's no need to worry... it's not a material amount. Why should we bother with this item?". Under each method, what is the minimum amount of adjustment Rivers would propose to Chargers Company's financial statements?
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter14: Activities Required In Completing A Quality Audit
Section: Chapter Questions
Problem 87RSCQ
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