You are evaluating audit results for assets in the audit ofRoberts Manufacturing. You set the preliminary judgment about materiality at $50,000.The account balances, performance materiality, and estimated overstatements in theaccounts are shown next.Account Performance Estimate of TotalAccount Balance Materiality OverstatementsCash $ 50,000 $ 5,000 $ 1,000Accounts receivable 1,200,000 30,000 20,000Inventory 2,500,000 50,000 ?Other assets 250,000 15,000 12,000Total $4,000,000 $100,000 ? a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 inoverstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?b. Based on the audit of the assets accounts and ignoring other accounts, are the overallfinancial statements acceptable? Explain.c. What do you believe the auditor should do in the circumstances?
You are evaluating audit results for assets in the audit of
Roberts Manufacturing. You set the preliminary judgment about materiality at $50,000.
The account balances, performance materiality, and estimated overstatements in the
accounts are shown next.
Account Performance Estimate of Total
Account Balance Materiality Overstatements
Cash $ 50,000 $ 5,000 $ 1,000
Accounts receivable 1,200,000 30,000 20,000
Inventory 2,500,000 50,000 ?
Other assets 250,000 15,000 12,000
Total $4,000,000 $100,000 ?
a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 in
overstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?
b. Based on the audit of the assets accounts and ignoring other accounts, are the overall
financial statements acceptable? Explain.
c. What do you believe the auditor should do in the circumstances?
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