You are evaluating audit results for assets in the audit of Roberts Manufacturing. You set the preliminary judgment about materiality at $50,000.
The account balances, tolerable misstatement, and estimated overstatements in the accounts are shown next.

a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 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 thecircumstances?

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Account Balance Tolerable Misstatement Estimate of Total Overstatements Account Cash Accounts receivable Inventory Other assets Total S50,000 1,200,000 2,500,000 250,000 S4,000,000 S5,000 30,000 50,000 15,000 $100,000 1,000 20,000 12,000