Case 12.2 Auto Parts. Inc. – materiality and evaluating accounting policies and footnote disclosures


[1] Describe whether you agree that capitalization of the tooling supplies is the preferable method of accounting for Auto Parts, Inc.

[2] In general, how do auditors develop an estimate of financial statement materiality? For Auto Parts, Inc., what is your estimate of financial statement materiality? Are there qualitative factors that might impact your decision about the materiality of the accounting treatment and the related disclosure?

[3] Assuming the policy change is considered material, how should it be reported and disclosed in the 2014 financial statements and what would be the effect, if any, of the accounting change on the auditor’s report?

[4] Do you concur with management’s assessment that the accounting change is immaterial and, therefore, requires no disclosure? Why or why not?

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