A Client's Previous Two Years of Financial Statements Understated Estimated

question 39

Multiple Choice

A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively, both immaterial amounts. This year, the auditors estimate that the accrual is understated by an additional $60,000. In this year's audit, $100,000 represents a material amount. Assuming that the entire understatement is to be recorded based on SEC SAB 108, the decrease in this year's income due to these understatements is:

• A) $0.
• B) $60,000.
• C) $110,000.
• D) $140,000.

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Definitions:

Codes Of Ethics

A set of guidelines designed to help professionals conduct business honestly and with integrity.

Professional Competence

Professional competence refers to the ability and expertise to perform a task or job effectively, meeting the required standards of the profession.

Planning Phase

The initial stage in a project or process where objectives are set, resources are allocated, and plans are made to pursue goals.

Allocating Resources

The process of assigning available resources in the most efficient way to achieve business goals and objectives.