Determination of Planning Materiality and Tolerable Misstatement
MARKS. BEASLEY· FRANK A. BucKLEss ·STEVEN M. GLOVER· DouGLAS F. PRAWITT
After completing and discussing this case you should be able to
Determine planning materiality for an audit client Provide support for your materiality decisions
Allocate planning materiality to financial statement elements
Anne Aylor, Inc. (Anne Aylor) is a leading national specialty retailer ofhigh-qualitywomen's apparel, shoes, and accessories sold primarily under the "Anne Aylor" brand name. Anne Aylor is a highly __ recognized national brand that defin_s_a _ e dis_tin_t_ c fashion_point of v:iew.--.Anne Aylor …show more content…
Anne Aylor, In(.
EXHIBIT 1 Smith and Jones, PA. Polley Statement: Planning Materiality This policy statement provides general guidelines for firm personnel when establishing planning materiality and tolerable misstatement for purposes of determining the nature, timing, and extent of audit procedures. The intent of this policy statement is not to suggest that these materiality guidelines must be followed on all audit engagements. The appropriateness of these materiality guidelines must be determined on an engagement by engagement basis, using professional judgment. Planning Materiality Guidelines Planning materiality represents the maximum, combined financial statement misstatement or omission that could occur before Influencing the decisions of reasonable individuals relying on the financial.statements. The magnitude and nature of financial statement misstatements or omissions will not have the same influence on all financial statement users. For example, a 5 percent misstatement with current assets may be more relevant for a creditor than a stockholder, while a 5 percent misstatement with net income before Income taxes may be more relevant for a stockholder ttian a creditor. Therefore, the primary consideration when determining materiality Is the expected users of the financial statements. Relevant financial statement elements and presumptions on the effect of combined misstatements or omissions that would be considered