Princess Mae Asuncion of Two Brothers Grocery, Inc.

has asked you and your team to meet with her concerning a possible assurance engagement
relating to the assertion that Two Brothers has the lowest overall prices of all grocery items in the
Vigan City area. Two Brothers has recently moved into the Vigan City area and is trying to
establish a high volume, profitable position. Asuncion has suggested to you that she believes that
while Two Brothers certainly doesnt have the lowest prices on all of the 12,500 types of items it
sells, on most any rational basis she believes that its prices are on the whole lower than
competition JTC, Ergo, and Super 8. In thinking about this, you realize that to perform such an
assurance engagement, suitable criteria must be used to evaluate the subject matter. For this
engagement, what would you consider to be the subject matter?

The subject matter of the case is the corroboration of Asuncions conviction that the prices of the
items that Two Brothers Grocery, Inc. sell are on the whole lower than its competitors in Vigan
City. Provide an approach on how one might derive suitable criteria for such an engagement,
given that costs are considered lowest on an overall basis, but not necessarily for every item.

Cost/Volume/Profit Analysis and Scalability is an approach that may be provided to managers to

understand the nature of cost behavior and how it affects the changes in volume impact
profitability. We also need to reconsider the break-even points and how to manage and achieve
target income levels. Information is needed to make the decision, and management will likely
enlist the internal accounting staff to prepare prospective information based upon alternative
scenarios. Likewise, product pricing decisions must be balanced against costs and competitive
market conditions. And, sensitivity analysis is needed to determine how sales and costs will
respond to changes in market conditions. After analyzing this approach, managers and internal
accounting staff will be able to derive suitable recommendations if Two Brother Grocery Inc., is
more profitable in terms of overall prices of the grocery items. Discuss the nature of the required
assertion from management for an engagement such as this.

The assertion required for the management to render must be qualitative in nature since it is the
accuracy of data that the practitioner will audit or check, however, quantitative measurements are
exceedingly needed to verify the accuracy of such. Also, the results of the examination and
evaluation of the subject matter must be without bias or prejudice either for or against the Two
Brothers Grocery, Inc..

To compete with manufacturers like Burrows Company Ltd., Snowfield Corporation, a

manufacturer of mainframe servers, makes oral claims of product superiority to engineers and
scientists, their targeted end users. Some of the claims amount to little more than puffery, the
best, the most, but others relate to performance and to market share. Two that are particularly
important to Michael Snowfield, the corporations chief executive officer, are: Average end-user
support time is 150 hours per end-user. Four hundred satisfied customers.

During the financial statement audit, Belinda Tolentino, engagement partner, discovers that the
performance and market share claims will be made in an upcoming advertising campaign and
included in sales contracts. Tolentino decides to propose an assurance service to Michael
Snowfield. What argument could Tolentino make to justify that the proposed assurance service
will add value to Snowfield Corporations product-performance and market-share claims?

Tolentino can say that by assessing and performing procedures using a combination of
inspection, confirmation, recalculation and reperformance, he can conclude that the mainframe
servers of Snowfield Corporation has the characteristics of reliability, availability and
serviceability. With the average end-user support time and already satisfied customers, Tolentino
can argue that the mainframe servers are unified family processors feeding both the high end
scientific users, and small business people. By giving possible outcomes and evaluating the said
claims, Ms. Tolentino can justify that the proposed assurance service will add value to Snowfield
Corporations product-performance and market-share claims. Use your imagination to explain
what evidence Tolentino would gather to test Snowfields claims.

In evaluating and testing the claims of Snowfield Corp., Tolentino should gather information
based on the company's past experience and on reported financial statements. The performance
of the company will prove that the average support time of 150 hours per enduser is relatively
higher than that of the Burrows Company and the four-hundred customers who said that they
are satisfied more than when they use the competitor's product will show a great percentage of
market share.