Question

You are evaluating audit results for assets in the audit of Bradleys

Manufacturing. You set the preliminary judgment about materiality at $75,000.

The account​ balances, performance​ materiality, and estimated overstatements in the accounts are shown next.

​(Click the icon to view the account​ balances, performance​ materiality, and estimated​ overstatements.)

Requirements

a.	Assume you tested inventory amounts totaling $750,000 and found $37,500 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?

Answer 1

Ans:

a.

Inventory Tested : $750,000

Overstatement Found : $37,500

Estimate of Total Misstatement : $37,500 / $750,000 = 5%

b.

Preliminary base on materiality = $75,000

Overstatement found in Inventory : $37,500

So based on audit of asset account only, the financial statements are within the limit of acceptable materiality and can be acceptable.

c.

In such circumstances auditor should perform some more audit procedure to analyse the overall material misstatement that may contain in the financial statements.

By performing some more test audit procedure on other accounts also may help the auditor for arising at better persuasive evidence. So that the auditor be able to provide his audit report on Financial Statements as a whole.

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