You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the preliminary judgment about materiality for current assets at $15,000 for overstatements and at $22

You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the preliminary judgment about materiality for current assets at $15,000 for overstatements and at $22,500 for understatements.

**See Chart**

Required:

(a) Justify a lower preliminary judgment about materiality for overstatement than understatements in this situation.

(b) Explain why the totals of the tolerable misstatements-exceed the preliminary judgments about materiality for both understatement and overstatements.

(c) Explain how it is possible that three of the estimates of total misstatement have both an overstatement and an understatement.

(d) Explain why the estimate of total overstatement amount for each account is less than tolerable misstatement, but that the total overstatement estimate exceeds the preliminary judgment of materiality.

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Tolerable Misstatement
Estimate of Total Misstatement
Account
Over-statements
Under-statements
Over-statements
Under-statements
Cash
$2,000.00
$3,000.00
$1,000.00
$0.00
Accounts Receivable
$10,000.00
$15,000.00
$9,000.00
$8,000.00
Inventory
$15,000.00
$22,000.00
$14,000.00
$5,000.00
Prepaid Expenses
$3,000.00
$5,000.00
$2,000.00
$1,000.00
Total
$30,000.00
$45,000.00
$26,000.00
$14,000.00

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