Criticize the statement given, “Throughout this audit, for all purposes, we will define a ‘material amount’ as $500,000.”

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Chapter 6, Problem 5RQ

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Criticize the statement given, “Throughout this audit, for all purposes, we will define a ‘material amount’ as $500,000.”

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You are evaluating audit results for assets in the audit ofRoberts Manufacturing. You set the preliminary judgment about materiality at $50,000.The account balances, performance materiality, and estimated overstatements in theaccounts are shown next.Account Performance Estimate of TotalAccount Balance Materiality OverstatementsCash $ 50,000 $ 5,000 $ 1,000Accounts receivable 1,200,000 30,000 20,000Inventory 2,500,000 50,000 ?Other assets 250,000 15,000 12,000Total $4,000,000 $100,000 ? a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 inoverstatements. 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 overallfinancial statements acceptable? Explain.c. What do you believe the auditor should do in the circumstances?

In considering materiality for planning purposes, an auditor believes that misstatements aggregating 1% of the total assets, where total assets is P1,000,000 would have a material effect on an entity’s balance sheet, but that misstatements would have to aggregate 5% of gross margin, where gross margin is P4,000,000 to materially affect the income statement. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate Group of answer choices P300,000 P150,000 P100,000 P200,000

Indicate whether you agree or disagree with the following statements and explain your reasoning. Teresa Dziuba was assigned to the Heathcliff Energy audit. She was ensuring that when recognizing revenues, all transactions and events that should have been recorded have been recorded. She was testing the existence assertion. Assume materiality for the financial statements as a whole is $200,000 and performance materiality for accounts receivable is set at $80,000. If the auditor finds one receivable that is overstated by $110,000, the auditor can ignore the error as it is less than $200,000 (overall materiality). Steve Slopak, the group partner was reviewing the work of Manny Fernandez on the Lake Shore Gold account. Manny asked Steve for an explanation on how audit risk_ould affect his work. Steve answered: “Audit risk affects the quantity and quality of evidence gathering."