The auditor of ABX Wholesaling Company is evaluating audit results for assets in the audit. The auditor has set the preliminary judgment about materiality of $76,000. The account balances, performance materiality and estimated overstatements in the accounts are shown below: Account

Account balance

Performance materiality

Estimate of total overstatements

Cash

50,000

7,000

6,000

Account receivable

2,200,000

50,000

45,000

Inventory

1,500,000

30,000

?

Other assets

350,000

25,000

23,000

Total

4,090,000

110,000

The auditor has chosen a sample of $300,000 in Inventory He tested it and uncovered $600 in overstatement. He then checked on the individual accounts and all accounts in the total assets against the allocated performance materiality and the preliminary materiality to decide the acceptability of the financial statements.

Required:

a. Ignoring sampling risk, what is the estimate of the total misstatement in Accounts Receivable?

b. Why the total performance materiality is not the same as the preliminary materiality? Should they be equal?

c. Based on the audit of the asset accounts and ignoring other accounts, are the overall financial statements acceptable? Please show workings to support the conclusion.

d. What do you believe the auditor should do in the circumstances?