Question
4) You are auditing prepaid expenses. The total balance is $2 million. Assume you used sampling and you selected three items to test. You compared
4) You are auditing prepaid expenses. The total balance is $2 million. Assume you used
sampling and you selected three items to test. You compared them to the supporting
documentation and found the following:
Item 1 - recorded correctly as $5,000
Item 2 - recorded correctly as $3,000
Item 3 - recorded as $2,000, but it was a typo, and it should have been recorded as $200.
Assume the overall materiality is $500,000, the performance materiality is $400,000. Does the
result of your test suggest a potential material misstatement in prepaid expenses? Explain how
you determine that.
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