Unit 2 Case Study
North Face Inc. Case Study
1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given set of financial statements? Defend your answer.
When it comes to immaterial effect on a set of financial statements I would say that clients should not accept all proposed audit adjustments. By clients not accepting all proposed audit adjustments, auditors are forced to determine the aggregate basis the impact of a proposed or passed audit adjustment that might occur on a client’s financial statement. A client may disagree with the need for a given adjustment.
2. Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements? Would it be feasible for auditors to conceal this information from their audit clients?
In my opinion, North Face Inc. displayed unethical clients. When information is given with materiality on audit engagements, unethical client personnel from all areas can use the information that could jeopardize an audit engagement or an individual’s audit procedures. It would not be feasible for auditors to conceal information from audit clients because an auditor’s intent and the given scope of materiality of an audit test can be determined by client’s getting documents to prepare various schedules to where audit procedures will be applied along with other audit-related tasks that may be performed,
3. Identify the general principles or guidelines that dictate when companies are entitled to record revenue. How were these principles or guidelines violated by the $7.8 million barter transaction and the two consignment sales discussed in this case?
One principle would be the revenue recognition when right of return exists meaning that it prohibits a seller from...