Question

Here it is

You are evaluating audit results for assets in the audit of Brooms Manufacturing. You set the preliminary judgment about materiality at $60,000. The account balances, performance materiality, and estimated overstatements in the accounts E (Click the icon to view the account balances, performance materiality, and estimated overstatements.) Requirements a. Assume you tested inventory amounts totaling $900,000 and found $13,500 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? Requirement a. Assume you tested inventory amounts totaling $900,000 and found $13,500 in overstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory? (Do not round intermediary calculations. Only round the amount you input in the cell to the nearest dollar.) Estimate of Total Overstatements Account i Data Table 1,000 Cash Accounts receivable Account Performance Balance Materiality 60,000 $ 3,000 $ 1,400,000 35,000 3,000,000 60,000 330.000 16,500 4,790,000 $ 114 500 17,000 Estimate of Total Inventory Account 12,500 Other assets Overstatements Cash $ $ Total Account Balance 60,000 1,400,000 3,000,000 330,000 Performance Materiality $ 3,000 35,000 60,000 16,500 1,000 17.000 Accounts receivable Inventory Other assets 12,500 $ 4,790,000 $ 114,500 Total Print Done

Answer 1

a) Estimate of total misstatement in inventory

Direct projection of the error = (Misstatement / amount) * sampled population value

= (13500 / 900,000) * 3,00,000

= 45,000 is the direct projection of error

b) No, in this case, the financial statements are not acceptable. If we include the error of inventory, the total overstatement error is $ 75,500, which may exceed the materiality of $60,000.

c) In this case, the auditor should either perform more testing so that a better estimation of the misstatements can be obtained or propose the audit adjustment so that the amount of unadjusted is less than the materiality.