You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the specifi c performance materiality for current assets at $12 500 for overstatements and at $20 000 for understatements. The estimated and actual misstatement ranges are shown below.
REQUIRED
a. Justify a lower materiality for overstatements than understatements in this situation.
b. Explain why the totals of the tolerable misstatements exceed materiality for both understatements and overstatements.
c. Explain how it is possible that three of the estimates of total misstatement have both an overstatement and an understatement.
d. Assume that you are not concerned whether the estimate of misstatement exceeds tolerable misstatement for individual accounts if the total estimate is less than materiality.
1. Given the audit results, should you be more concerned about the existence of material overstatements or understatements at this point in the audit of Quicky Plumbing Co.?
2. Which account or accounts will you be most concerned about in (1)? Explain.
e. Assume that the estimate of total overstatement amount for each account is less than performance materiality, but that the total overstatement estimate exceeds overall
materiality.
1. Explain why this would occur.
2. Explain what the auditor should do.

Tolerable Misstatement Estimate of Total Misstatement Account Cash Accounts receivable Inventory Prepaid expenses Total Overstat ements Understatements Understatements $ 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 19 000 10 000 1 000 $30 000