Question

You're auditing ABC corporation and their pretax income is 90,000,000 The guideline to determine materiality are as follow;

Planning materiality: 3% of pretax income

Tolerable misstatement: 40% of planning materiality.

During the audit the following misstatements were discovered:

Inventory: 200,000

Accounts receivables: 90,000

Fixed assets: 110,000

1. Determine planning materiality

2. Determine tolerable misstatement

3. State conclusion

Answer 1

Ans: Planning Materiality =3% of 90, 000,000

= 27,00,000

Tolerable Misstatements= 40% of 2700000

=1080000

Ans C: total identified misstatememis = 400000

As the totaltidentified mistatements are lower than tolreable misstatements ,so the auditor neednt have to implement extensice audit procedure. HoweverHhe need to obtain reasonable surity that there is no loop hole in process so such misstatements doesnt result into big fraud inifuture ans the misstatements can be reduced to minimalm