Scenarios 2,3 and 4 don’t have to complete scenario 1.
1000 word required assignment
333 LO 3-1, 312 For each of the following scenarios, perform the three steps in the materiality process: (1) determine overall materiality, (2) determine tolerable misstatement, and (3) evaluate the audit findings Scenario 1: Murphy & Johnson is a privately owned manufacturer of small motors for lawnmowers, tractors, and snowmobiles. The components of its financial statements are (1) income before taxes = $21 million, (2) total assets = $550 million, and (3) total revenues = $775 million. a. Determine overall materiality, and determine tolerable misstatement. Justify your decisions. b. During the course of the audit, Murphy & Johnson's CPA firm detected two misstatements that aggregated to an overstatement of income of $1.25 million. Evaluate the audit findings. Justify your decisions. Scenario 2: Delta Investments provides a group of mutual funds for investors. The components of its financial statements are (1 before taxes = $40 million, (2) total assets = $4.3 billion, and (3) total revenues = $900 million. a. Determine overall materiality. and determine tolerable misstatement. Justify your decisions. b. During the course of the audit, Delta's CPA firm detected two misstatements that aggregated to an overstatement of income of $5.75 million. Evaluate the audit findings. Justify your decisions. Scenario 3: Swell Computers is a public company that manufactures desktop and laptop computers. The components of the financial statements are (1) income before taxes = $500,000. (2) total assets = $2.2 billion, and (3) total revenues = $7 billion a. Determine overall materiality and tolerable misstatement. Ju your decisions. b. During the course of the audit, Swell's CPA firm detected one misstatement that resulted in an overstatement of income by $1.5 million. Evaluate the audit findings. Justify your decisions. Scenario 4: Emma’s Designs is a for-profit clothing manufacturer. The components of its financial statements are (1) income before taxes = $3.5 million, (2) total assets = $33 million, and (3) total revenues = $95 million. Emma’s Designs is considered a moderate-risk audit, but Accounts Receivable is deemed to have a higher risk of misstatement. a. Determine overall materiality and tolerable misstatement. Justify your decisions. b. During the course of the audit, Emma's CPA firm detected one misstatement in a key customer's Accounts Receivable equal to $90,000. The firm also detected a second misstatement in Cash equal to $10,000. Evaluate the audit findings. Justify your decisions. Page 93