Materiality Walmart

Chapter 3. Wal-Mart Materiality homework.

In determining materiality for Wal-Mart we will follow the 3 steps.

Determine Overall materiality

Determine Tolerable misstatement

Evaluate audit findings

1. Overall Materiality Wal-Mart

Considering materiality for Wal-Mart, since there are no significant changes/fluctuations in income for the 3 years, I will use income before taxes for year 2012. Overall materiality 24,398,000x5% = 1,219,000

2. Determine Tolerable Misstatements

Assets

Cash 6,550/193,406= 3.4% anything above 3.4% of 1,219,000 or 41,477 is considered material.

Receivables 5,937/193,406= 3.1% anything above 3.1% of 1,219,000 or 37,420 is considered material.

Inventories 40,714/193,406= 21.1% anything above 21.1% of 1,219,000 or 256,612 is considered material.

Liabilities

Short term borrowing 4,047/193,406= 2.1% anything above 2.1% of 1,219,000 or 25,599 is considered material.

Accounts payable 36,608/193,406= 18.9% anything above 18.9% of 1,219,000 or 230,733 is considered material.

Retained earnings 68,691/193,406= 35.5% anything above 35.5% of 1,219,000 or 432,745 is considered material.

3. Evaluate audit findings

Any amount greater or almost equal to the tolerable misstatements will be investigated and management will be asked to make an adjustment to theaffected account.

The sum total of all the misstatements might be higher than the Overall materiality and that’s ok so long as individual balance accounts don’t exceed the tolerable misstatements.

Chapter

3. Exxon Mobil Corp Materiality homework. In determining materiality for Exxon Corp we will follow the 3 steps.

Determine Overall materiality

Determine Tolerable misstatement

Evaluate audit findings

4. Overall Materiality Wal-Mart

Considering materiality for Exxon, since their income fluctuates for the 3 years given, ill use 5% of the average of their income before taxes for the 3 years. (73,257+52,959+34,777)/3 = 53,664,000  Overall materiality 53,664,000x5% = 2,683,217. Therefore when assigning individual balance sheet balance accounts, whatever the% against the overall materiality, if it exceeds the tolerable amount, it will be investigated and management will be advised to make an adjustment.

5. Determine Tolerable Misstatements

Assets

Cash and cash equivalents 12,664/331,2052= 3.8% anything above 3.8% of 2,683,217 or 101,962 is considered material.

Receivables 38,642/331,052= 11.7% anything above 11.7% of 2,683,217 or 31,320 is considered material.

Inventories 11,665/331,052= 3.5% anything above 3.5% of 2,683,217 or 93,913 is considered material.

Liabilities

Notes and loans payable 7,711/331,052 = 2.9% anything above 2.9% of 2,683,217 or 77,813 is considered material.

Accounts payable 57,067/331052= 17.2% anything above 17.2% of 2,683,217 or 230,733 is considered material.

Retained earnings.

6. Evaluate audit findings

Any amount greater or almost equal to the tolerable misstatements will be investigated and management will be asked to make an adjustment to the affected account.

The sum total of all the misstatements might be higher than the Overall materiality and that’s ok so long as individual balance accounts don’t exceed the tolerable misstatements.