C a s es inc lu de d in t his Se ction
7.1 Anne Aylor, Inc.
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Determination of Planning Materiality and
O t he r c ase s t h at discuss topics rel ated to this section
Sarbox Scooter, Inc.
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Scoping and Evaluation Judgments in the Audit of Internal
Control over Financial Reporting
12.1 EyeMax Corporation . . .
Evaluation of Audit Differences
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42 as of the
close of business on March 1, 2008. Anne Aylor is a leading national specialty retailer of betterquality women’s apparel, shoes, and accessories
At the end of fiscal 2007, Anne Aylor operated approximately 929 retail stores located in 46
states under the name Anne Aylor.
Net revenue for fiscal 2007 was $2.4 billion and net income was $97 million.
Substantially all of the company’s merchandise is developed in-house by its product design and
development teams and sourced to 231 independent manufacturers located in 15 countries.
Merchandise is distributed to the company’s retail stores through a single distribution center,
located in Louisville, Kentucky.
Anne Aylor is required to have an integrated audit in accordance with the standards of the Public
Company Accounting Oversight Board (PCAOB).
Donna Fontain, the audit partner, has performed a preliminary analysis of the Company and its
performance and believes the likelihood of management fraud is low.
Donna’s analysis of Anne Aylor’s performance is documented in memo G3.
Current events have been documented by Donna in memo G4.
No material misstatements were discovered during the prior year audit of Ann Aylor’s financial
The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and
Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. It is not intended to illustrate either effective or ineffective
handling of an administrative situation.
Copyright © 2009 by Pearson Education, Inc., Upper Saddle River, NJ 07458
Section 7: Planning Materiality
USE OF CASE
Information from Ann Taylor Stores Corporation’s 3/20/2008 form 10-K report was used in
developing this case (see www.anntaylor.com for more information on Ann Taylor Stores). The
information presented in this case is not identical to the information presented in the Ann Taylor
10-K to simplify some of the reporting issues. Many students will find the determination of planning
materiality and tolerable misstatement difficult to understand. This case assignment helps walk
students through that process. The case assignment is best used in an undergraduate and graduating
auditing course when audit risk and materiality are discussed. Instructors may want to consider
simplifying this case assignment by dividing it into two parts. Part one could require students
to determine planning materiality while part two could require students to determine tolerable
misstatement for individual balance sheet accounts.
The approach we recommend for this assignment is to first ask students to review the
case assignment materials and conduct a preliminary “in-class” discussion addressing question 1.
Students are then asked to complete question 2 outside of class. Once students have completed this
assignment, it is important to discuss the solution with...