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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 $1million 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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