In practice, the auditor frequently sets tolerable error on individual accounts so that the sum of those errors is greater than the level of materiality for the engagement. For example, the audit manager on the Mary Sue Co. audit set tolerable error on its accounts as follows:

The overall materiality level for the audit is \(\$ 40,000\). How can the auditor justify this practice and still maintain the appropriate level of audit risk?

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Cash Accounts receivable Inventory Current liabilities Long-term debt $ 20,000 35,000 20,000 15,000 5,000