Review DCG’s policies and procedures pertaining to overall planning and performance materiality. The firm’s guidance is found in a file attached to this case (Argo Co. DCG Policies and Procedures document.pdf).
Using information from the case and from the DCG Policies and Procedures file, complete Work Paper (WP) 2-1 in the attached Excel file (Argo Co. Materiality Workpapers.xlsx) to document your calculation of overall planning materiality for the engagement.
The work paper serves an important documentation role; as such, make sure to perform each of the following steps:
a. Identify and select the most appropriate financial statement benchmark for establishing overall planning materiality. Briefly justify your selection in the text box provided.
(I identified Pre-Tax Income)
b. Select and document an appropriate materiality factor (percentage) for determining overall planning materiality. Briefly justify your selection in the text box provided in the work paper.
(I selected 5%)
c. Verify the accuracy and appropriateness of the Computed Overall Planning Materiality for the engagement. Record your initials in the heading of the work paper to establish responsibility for the work paper and its contents.
(I entered)
Using your calculations from the previous tasks and the guidance in DCG’s Policies and Procedures document, complete Work Paper (WP) 2-2 to document the maximum threshold for performance materiality and to determine appropriate levels of performance materiality to be applied to each of the listed accounts.
Ensure that you complete each of the following steps:
Select and document an appropriate performance materiality factor for each of the listed accounts. Justify your selections for each account in the provided text boxes.
(I have selected, please fee free to change them if it’s needed)
b. Verify the accuracy and appropriateness of the Total Performance Materiality Assigned.
Refer to the Total Performance Materiality Assigned in WP 2-2. Explain why the auditor would allocate more than the Computed Overall Planning Materiality amount (see WP 2-1) to the set of financial statement accounts.
In other words, why would auditors permit the Total Performance Materiality Allocated amount to be greater than the Computed Overall Planning Materiality amount?
