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Case $10-6$

Care For Kids Inc.

You are the senior manager or audit engagement partner on Care For Kids Inc., a not$-$for$-$

profit organization that has a December $31$ year$-$end.

While performing year$-$end substantive procedures, the engagement team identified an

error in the entity's year$-$end adjusting entries. Care For Kids Inc. had inadvertently not.

recorded an unrealized gain of $$5$ million in one of its many investment portfolios. The

investments total approximately $$200$ million. Through inquiry of client management, the

engagement team learned that the accounting department had not reviewed the broker's

statement for this particular portfolio. The portfolio, which consisted of traded securities$,$

had increased in market value by $$5$ million. Materiality for the audit was $$10$ million.

As part of the audit, you must assess the operating effectiveness of controls related to the

misstatement under audit standards established by the AICPA.

Required:

What effect would the materiality of this oversight have on your

assessment of this control weakness? Be specific to this case described

above. One paragraph should be sufficient to answer this question.

Would you assess this control weakness, described above, as material?

Please answer yes or no$.$ Please explain your reasoning in just one

paragraph.

Applicable Professional Pronouncements:

AICPA Statement on Auditing Standards No$.110$

AICPA Statement on Auditing Standards No$.115$

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