What is your estimate of the total misstatement in inventory

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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?

Reference no: EM133117942

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