CHAPTER 8

MATERIALITY DECISIONS AND PERFORMING

ANALYTICAL PROCEDURES
8-14. a.

The following discussion first evaluates each potential misstatement individually.

1. Title did not pass on these two shipments until January 20x5. Hence, revenue
should not have been recognized. Because the auditor audited every transaction
during the cutoff period, sampling is not involved. The following journal entry
represents the journal entry needed to correct the potential misstatement.
Revenue
Inventory
Accounts Receivable
Cost of Goods Sold

$240,000
$130,000
$240,000
$130,000

2. Inventory has not been recorded at the lower of cost or market. The potential
magnitude of the misstatement would be to mark inventory on the books at
$395,000 down to $175,000.
Cost of Goods Sold
Inventory

$220,000
$220,000

3. These two transactions represent unrecorded liabilities. Title was received in each
transaction prior to year-end. The following journal entry represents the journal
entry needed to correct the potential misstatement.
Inventory
Fixed Assets
Accounts Payable

$200,000
$150,000
$350,000

b.

The following analysis considers the aggregate impact of these misstatements on the
financial statements. It assumes a 35% tax rate.

In aggregate, accounts receivable is overstated by $240,000 (tolerable misstatement is

$260,000), inventory is understated by $110,000 (tolerable misstatement is $250,000),
accounts payable is understated by $350,000 (tolerable misstatement is $240,000), pretax
income is overstated by $330,000 (tolerable misstatement is $675,000). Accounts
payable is materially misstated, and misstatements in accounts receivable approaches
tolerable misstatement. Accounts payable should be adjusted and since changes are
being made to the financial statements the auditor might propose making adjustments for
all known misstatements.

8-15. The fact that inventory turn days is speeding up for Construction Industry Resources, Inc.
may be an indicator that inventory is understated. This fact, combined with the fact that
gross margins are declining may be an indication of inventory shrinkage or the possible
theft of inventory. This is a problem in the construction industry. This outcome from
analytical procedures should influence the auditors assessment of fraud risk, and the
auditor should consider that there is a high risk that inventory might be misstated due to
misappropriation of assets.
8-16. a.

The following table calculates purchases, gross margin percentage, inventory turn
days, accounts receivable turn days, accounts payable turn days, and the gross and
net operating cycle.

b.

Important trends for 20x5 (the likely year about to be audited) include the
significant increase in inventory turn days, the increase in gross margin to the best
result in the four year period, and the improved collection period.

c.

In order to turn tolerable misstatement into inventory turn days the auditor would
use the formula for calculating inventory turn days as follows:
Tolerable Misstatement / Cost of Goods Sold * 365 = 45 / 1,859 * 365 = 7.84
days

d.

The most significant changes in 20x5 are the combined decrease in purchases and
increase in gross margin, increasing to 52.4%, while inventory turn days also
increases significantly, increasing to 199 days. The increase from 183 day
inventory turn to 199 day inventory turn is significant given the results in part c
above. This is potential evidence of an overstatement of inventory that might be
due to either an error in counting or calculating inventory or due to fraudulent
financial reporting.

TERJEMAHAN
B. Trend yang terpenting terjadi pada tahun 20x5 (tahun yang akan diaudit)karena pada tahun ini
terjadi peningkatan yang signifikan dalam beberapa hal antara lain: rasio perputaran persediaan
(hari)gilirannya,dan laba kotor yang mengalami kenaikan, dan pada tahun ini merupakan hasil
terbaik selama 4 th terakhir karena mengalami kenaikan yang signifikan.
C. Untuk menghitung salah saji ditoleransi pada rasio perputaran persediaan (hari) auditor akan
menggunakan rumus sebagai berikut:

Tingkat salah saji yang ditoleransi / HPP * 365 = 45 / 1,859 * 365 = 7.84 hari
D. Perubahan yang paling signifikan pada tahun 20x5 adalah penurunan pembelian dan
peningkatan marjin laba kotor. Marjin laba kotor meningkat menjadi 52,4%, sedangkan rasio
perputaran persediaan juga meningkat secara signifikan, meningkat menjadi 199 hari, ini
merupakan hasil yang mengalami peningkatan yang tajam apabila ditinjau dari hasil perhitungan
di bagian C di atas. Hal Ini membuktikan terjadi potensi berlebihan dalam perhitungan rasio
perputaran persediaan yang mungkin disebabkan karena terjadi kesalahan dalam penghitungan
atau karena kecurangan pelaporan keuangan.