5. What method would you have recommended that Avis or her colleagues use in deciding whether the cutoff errors she discovered had a material impact on Lowell's year-end financial statements? Identify the factors or benchmarks that should have been considered in making this decision.

Question

Nikolai Ruiz

Business

20 December, 22:11

5. What method would you have recommended that Avis or her colleagues use in deciding whether the cutoff errors she discovered had a material impact on Lowell's year-end financial statements? Identify the factors or benchmarks that should have been considered in making this decision.

+5

Answers (1)

Know the Answer?

Alex Parker · Answer 1

Answer: Compare her friend's store to similar stores in her industry.

Explanation: The accountant (Avis) viewed her friend (Lowell) 's store on its own, without comparing it to similar stores in the market. To enhance the materiality of the store's cut - off errors the accountant can calculate the cut - off errors for multiple stores with similar financial year ends. The accountant can then calculate an average per store, and because all the stores have been calculated using the same methods, the accoutnant can then compare the stores to one another.

After doing this the accountant, along with her colleagues, can then proceed to determine an acceptable cut - off error limit. This limit can be based on financial statements in its totality, a specific transaction within the financial statements, and how this transaction affects other transactions.