(Objectives 9-2, 9-3, 9-4) 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?
Objective 9-2
Make a preliminary judgment about what amounts to consider material.
Objective 9-3
Determine performance materiality during planning.
Objective 9-4
Use materiality to evaluate audit findings.
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