Instructions: For the first three scenarios, you are a new auditor on the audit with a supervisor and manager on site with you. Materiality is set at $20,000, tolerable misstatement $15,000 and trivial $3,000. Please respond with your thoughts as to how the situation should be handled and possible issues that could have created the circumstances.

You are performing the search for unrecorded liabilities. During the review of unpaid inventory purchase invoices, the production manager tells you that managing inventory is a nightmare, and the quantities are wrong in the system. She asks you to keep the information to yourself, as she is new to the company. However, she suggests that you watch the reconciliation of the physical inventory.