8e Ch3 Mini Case Materiality

EarthWear EarthWear Hands-on Mini-case Chapter 3 - Materiality and Tolerable Misstatement © The McGraw-Hill Companies, Inc., 202

In this mini-case yo" will determine plannin% materiality as well as tolerable misstatement amo"nts $or balance sheet acco"nts o$ &arth'ear Clothiers, Inc. 'hile many a"ditin% $irms "se a simple approach $or establishin% plannin% materiality and tolerable misstatement similar to the one ill"strated in yo"r te(tboo#, some $irms "se more detailed %"idelines that in)ol)e allocatin% a m"ltiple o$ plannin% materiality to balance sheet acco"nts. This case ill"strates one s"ch approach.

INSTRUCTIONS:

1

*ead the Materiality G"idelines $or 'illis + dams Cs. To open the %"idelines doc"ment please do"ble-clic# on the $ollowin% icon.  doc"ment will open in Microso$t 'ord.

Document

2

!ollowin% the Materiality G"idelines $or 'illis + dams Cs, complete all the $ields on 'or# aper 3- indicated in yellow /'or# aper 3- is $o"nd on the ne(t tab o$ this wor#sheet. !or yo"r con)enience, &arth'ear !inancial 1tatements ha)e been incl"ded in wor#sheet tabs a$ter the  wor#in% papers.

Name: Class:

ERTHWER C!OTHIERS "#annin$ Materia#it% &ece'(er 31) 2*12 (In thousands) Una+dited 2*12 /1)*10)0* /52)153 /*)154 /21)* /12*)1 /30)42

1, ench'ar. &ata 1ales 5 *e)en"e &(penses re-ta( income C"rrent assets C"rrent liabilities Total assets Materiality 2, Esta(#ish "#annin$ Materia#it% !ee# Meas+re'ent ase re-ta( income

 3- Initial Here

0525206

2*11 7890,66 796:,383 739,9 7208,089 7:,2: 7328,898 7,00

*)154

"ercenta$e #ied6

5,*7

"#annin$ Materia#it%

/3)5*

ases and "ercenta$e Ran$es: ro$it ;riented &ntities Pre-tax income Total Revenue Current Assets or Liabilities Total Assets

3 -  - < 2 - 9< > - <

 !or ublic comanies# $% is t&icall& the maximum.

?ot-$or-ro$it &ntities

lease "se this template in con@"nction with 'illis + dams Materiality G"idelines. The materiality $actors pro)ided are %"idelines only and sho"ld be "sed only as an aid as yo" "se pro$essional @"d%ment to determine plannin% materiality.

Name: Class:

ERTHWER C!OTHIERS ##ocation o9 Materia#it%: To#era(#e Misstate'ents &ece'(er 31) 2*12 (In thousands) Plannin* +aterialit& ,rom or aer /-01

cco+nt Na'e

2*12 Una+dited Tria# a#ance

2*11

 3- Initial Here

0525206

2/#$34

To#era(#e Misstate'ent

76,8 72,9

/0)350 /)43

7900 700

722,33

/14)03

72,300

7,69

/1*)212

700

;ther prepaid e(penses

7:,39

/5)435

7200

Ae$erred income ta( bene$its

7,32

/1*)33

7290

Band and b"ildin%s !i(t"res and e4"ipment Comp"ter hardware and so$tware Beasehold impro)ements

70,8 7:,93 7:6,8: 73,00

/)5* /)32 /5)4** /3)144

790 790 7,300 760

cc"m"lated depreciation and amortiation

79,8:

/0)22

72,900

7623

/1)34

7200

7,0 7:2,908

/1*)51* /54)1

7300 7,00

79,80

/)1**

7600

72:,3 7,932 7,9 78,6:8

/3*)402 /3)1* /1)222 /)345

700 7200 7300 7290

72: 79,6:0 720,60 /78 73,3 73,80 /7 63,8 90

/21 /5)4* /25)10 ?/3@ /2)13 /31)4*2 ?/134)512@

Cash and cash e4"i)alents *ecei)ables, net In)entory repaid ad)ertisin%

Intan%ibles, net Bines o$ credit cco"nts payable *eser)e $or ret"rns ccr"ed liabilities ccr"ed pro$it sharin% Income ta(es payable Ae$erred income ta(es Common stoc#, 2:,2 shares iss"ed Aonated capital dditional paid-in capital Ae$erred compensation cc"m"lated other comprehensi)e income *etained earnin%s Tr ea s" ry stoc#, : ,9 6: a nd : , 0: sha res a t co st, re spe cti)e ly Co'(ined To#era(#e Misstate'ent ?co#+'n 3@ Maa(#e Aor Co'(ined To#era(#e Misstate'ent6 Net Re'ainin$ ##o>ance Aor Co'(ined To#era(#e Misstate'ent

=!o"r Times lannin% Materiality. In the te(tboo#, a more %eneral approach to allocate no more than 9< o$ plannin% materiality to acco"nts as tolerable misstatement is $ollowed. Howe)er, as noted in the disc"ssion on materiality in Chapter 3 o$ the te(t, some $irms do "se a m"ltiple approach. This mini-case "ses the m"ltiple approach to pro)ide hands-on practice at allocatin% tolerable misstatement to acco"nts.

© The McGraw-Hill Companies, Inc., 202

"ercenta$e o9 cco+nt

Es 9ro' ?+sed 9or@ 9inancin$ actiities: roceeds $rom /payment o$ short-term debt "rchases o$ treas"ry stoc# Iss"ance o$ treas"ry stoc# ?et cash $lows "sed $or $inancin% acti)ities

2*12 ?+na+dited@ /43)405

2*11

2*1*

722,92

73,222

/1)515 /42 ?/4)33*@

79,23 79 73,360

/7,93 73,6:9 703 79,3:

/1)5

726

7:02

/4)232 ?/25)35@ /1)24 ?/1@ ?/)323@ /21* /5)5*2 /1)5 /)34 /4)00 ?/1)4*4@ /4)

/7,33: /7:,82 /7:: /72,936 76,0 79 /708 /72:2 7,823 7,628 72,66 738,3:

72,:9 73,30 73,0 7,92 /7, 7638 /76,82 732 /72,0 7,:9 763 78,

?/2)334@

/72,898

/7,20

?/2)334@

/72,898

/7,20

?/5*1@ ?/)*52@ /1)40* /)03

73,380 /7,82 73,06 /7 08

/7,:82 /72,839 76,3 /7: 30

PBC:

Prepared by Client

 -6

ERTHWER C!OTHIERS Conso#idated State'ents o9 Stoc.ho#dersD Inest'ent (In thousands)

Comprehensi)e Income Falance, Aecember 3, 2008 "rchase o$ treas"ry stoc# Iss"ance o$ treas"ry stoc# Ta( bene$it o$ stoc# options e(ercised Ae$erred compensation e(pense Comprehensi)e incomeE ?et income !orei%n c"rrency translation ad@"stments nrealied %ain on $orward contracts Comprehensi)e income Falance, Aecember 3, 200 "rchase o$ treas"ry stoc# Iss"ance o$ treas"ry stoc# Ta( bene$it o$ stoc# options e(ercised Ae$erred compensation e(pense Comprehensi)e incomeE ?et income ;ther comprehensi)e incomeE !orei%n c"rrency translation ad@"stments nrealied %ain on $orward contracts Comprehensi)e income Falance, Aecember 3, 20 "rchase o$ treas"ry stoc# Iss"ance o$ treas"ry stoc# Ta( bene$it o$ stoc# options e(ercised Ae$erred compensation e(pense Comprehensi)e incomeE ?et income ;ther comprehensi)e incomeE !orei%n c"rrency translation ad@"stments nrealied %ain on $orward contracts Comprehensi)e income Falance, Aecember 3, 202

© The McGraw-Hill Companies, Inc., 202

Common 1toc# 72:

Aonated Capital 79,6:0

dditional aid-in Capital 7,96:

PBC 

2535202

Ae$erred Compensation /729

cc"m"lated ;ther Comprehensi)e Income 7,302

*etained &arnin%s 72:6,9

Treas"ry 1toc# /730,66 /72,839 76,3

7,:9 703 73,222 7:0 73 73,:98

73,222

73,222 7:0 73

7:0 73 72:

79,6:0

78,3

/796

7,38

7289,30

/728,6:2 /7,82 73,06

7,628 79 722,92

722,92

/7,9 73,289 726,: 79,6:0

720,60

/78

73,3

/7,9 73,289 73,80

/763,890 /7,092 7,680

76,88 762 763,689

782,936 /7,82 73,06 7,628 79 722,92

/7,9 73,289 72:

Total 79,:2: /72,839 76,3 7,:9 703

7206,222 /7,092 7,680 76,88 762 763,689

763,689

/722 /7,68 76,9

/722 /7,68 72:

79,6:0

729,8

/73:

72,3

/722 /7,68 73:,602

/736,92

72:0,6:

PBC:

Prepared by Client

 -9

ERTHWER C!OTHIERS Aie-;ear Conso#idated Ainancia# S+''ar% ?+na+dited@ (In thousands# excet er share data)

PBC 

2535202

!or the period ended Aecember 3

2*12 ?+na+dited@

2*11

2*1*

2**0

2**

1)*10)0* *)154 ,07 43)405

890,66 39,9 3.< 22,92

9,9 68,998 9.< 3,222

8,386 32,9 3.:< 20,20

2,398 ::,: .< 6,:8

1,4 1,45 10)150

.9 .6 8,93

.:0 .9: 8,999

.02 .0 8,0:

2.0 2.00 20,03

           

21)* 12*)1 12)4 30)42 )345 2*)4

208,089 :,2: 20,:6 328,898 8,6:8 206,222

,9 8,0: 0,62 28:,92 9,82: 82,939

8,28 33,636 09,09 28:,36 9,2: 9,:2

86,669 ,30 ,32 2,9 9,:: 9,:3

     

141)*3 2)334 1)515 107 127

82,2 2,898 9,23 < <

80,06 ,20 3,6:9 < <

9,:3 30,3 2,9 3< <

:,3: 3,36 8,33 2< :<

Inco'e state'ent data: ?et 1ales reta( Income ercent o$ net sales ?et income "er share o9 co''on stoc.: Fasic earnin%s per share Ail"ted earnin%s per share Common shares o"tstandin% a#ance sheet data: C"rrent assets C"rrent liabilities & and intan%ibles Total assets ?onc"rrent liabilities 1hareholdersD in)estment Other data: ?et wor#in% capital Capital e(pendit"res Aepreciation and amortiation e(pense *et"rn on a)era%e shareholdersD in)estment *et"rn on a)era%e assets

© The McGraw-Hill Companies, Inc., 202

PBC:

Prepared by Client