Question

Explain/justify why the sum of performance materiality is allowed to exceed the preliminary judgement about materiality.

Answer 1

ASES (Date - Page - dament about The Justification for a lower preliminary Judgment ahe is related for directly to materiality overstatements legal liability and audit risk. auditors Most believe they have a geo greater legal and I professional a responsibility to discover overstatement ! of whers er equity equity than than unde understatements because users are likely to be more Critical of overstatements. That does not imply there is ho vesponsibility for Understatements. There are two reasons for pernutting the sun of toleuable misstatements to exceed & Overall materiality. furst, it is unlikely that all t accounts will be misstated by the full amount of tolerable misstatement second some - accounts are likely to be overstated resulthy- in het misstatement that is likely to be a less than overall materiality. This results because of the an estimate of scumpling error for each account lexampu & for an the likely extimated of receivable accounts is an understatement of & 7500 t of a sampling erros of $ 11,500 he you would most concerned about understandement for accounts receivable because the estimated understatement for alcount of $ 9000 exca

Date Page I the tolerable a clount. misstatement of $ 18,000 for that