Reference no: EM133121397
Question - You are evaluating audit results for assets in the audit of River's Manufacturing. You set the preliminary judgment about materiality of $52,000. The account balances, performance materiality and estimated overstatements in the accounts are shown below:
Account Account balance Performance materiality Estimate of total overstatements
Cash 40,000 5,000 1,000
Account receivable 1,100,000 30,000 20,000
Inventory 2,700,000 50,000 ?
Other assets 250,000 15,000 12,000
Total 4,090,000 100,000
Required -
a. Assume you tested inventory amount totalling $1 million and found $8,000 in overstatement. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?
b. Based on the audit of the asset accounts and ignoring other accounts, are the overall financial statements acceptable? Explain.
c. What do you believe the auditor should do in the circumstances?
d. Why the total performance materiality is not the same as the preliminary materiality? Should they be equal?
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