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North Face Case Study


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North Face Case Questions

1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given financial statements? Defend your answer.

No, clients are not required to accept all proposed audit adjustments that need to be made to the financial statements. However, the auditor is required to challenge management to justify not recording these adjustments. Regardless of the justification, the auditor needs to be aware that even if theses misstatements don’t effect the financial statements they can lead to material misstatements that can be in other parts of the financial statements. The possibility of prior financial statements containing material misstatements is of concern as well as material misstatements showing up in future audits. The auditor is required to document the nature and effect of the misstatements as well as the conclusion as to whether the misstatements can cause the financial statements to be misrepresented (PCAOB. 2002).

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?

The materiality threshold is going to vary from organization to organization but auditors have long used the materiality threshold in the preparation and audit of the financial statements of 5%. If the auditor and client have a long standing relationship, then the client may already know of the threshold when means they already know what kinds of accounts and corresponding amounts would be considered immaterial and not affect the financial statements. All of this can affect the reliability of financial statements and the auditor’s opinion. But auditors should not conceal this information from

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