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The North Face Case

In: Business and Management

Submitted By Jayone
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Unit: 2 The North Face Case
AC503: Advanced Auditing

1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given financial statements?
No, if we consider overall accounting. Companies shouldn’t have to adopt an auditor’s proposal. Yes, if we consider this case with North Face. You see Crawford new Deloitte’s materiality threshold and expected them to propose adjustments but ultimately pass due to the fact there was no assumed “Immaterial” impact. However, it was later realized that Crawford did not inform the Deloitte auditors of the $2.65 million portion of the barter transaction. It safer to purpose and report then purpose and pass.
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?
I think so. It would avoid companies like North Face and individuals like Crawford to take advantage of these thresholds. I don’t know how feasible it would be since auditor’s live by certain standards and transparency. The goal of an auditor is to be objective and honest, by concealing materiality threshold they would doing the very thing they are trying impose.
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?
When considering revenue recognition, revenues and gains are realized when assets are exchanged for cash or even claims for cash. Revenue is ultimately considered earned when the company has substantially accomplished what it has to do in order to be entitled to the benefit

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