L3 Notes_Part_8 - LS3: 1 Allocating Preliminary Estimate of...

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LS3: 1 Allocating Preliminary Estimate of Materiality You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the preliminary judgment about materiality for current assets as $12,500 for overstatements and at $20,000 for understatements. The following are the preliminary and actual estimates. TOLERABLE MISSTATEMENT ESTIMATE OF TOTAL ERROR ACCOUNT Over- Statement Under- Statement Over- Statement Under- Statement Cash A/R Inventory Prepaid Exp. Total $2,000 12,000 8,000 3,000 $25,000 $3,000 18,000 14,000 5,000 40,000 $2,000 4,000 3,000 2,000 $11,000 $0 19,000 10,000 1,000 $30,000 Arens, Elder, Beasley
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LS3:1 Allocating Preliminary Estimate of Materiality a. Justify a lower preliminary judgment about materiality for overstatement than understatement in this situation. b. Explain why the totals of the tolerable misstatements exceed the preliminary judgments about materiality for both understatements and overstatements. c.
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L3 Notes_Part_8 - LS3: 1 Allocating Preliminary Estimate of...

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