Your task was to audit the existence assertion of accounts receivable, the balance of which as of September 30, 2020 is $320,000.

Date

Name of customer

Amount

05-Jun Jessica Greene $230

08-Nov John Black $170

04-Jan Randy White $120

12-Feb Melissa Redd $540

08-Nov Will Grey $170

You examined the supporting documentation and realized that the transaction recorded for Melissa Redd was not recorded correctly: the shipment was for two items, $170 each, so it should have been recorded as $340 instead of $540. Assume the overall materiality is $80,000, the performance materiality is $50,000.

Does the error suggest an overstatement or an understatement? Explain! (2 marks)
Which accounts receivable assertion (list one) is incorrect because of this error? Explain! (2 marks)
Does the result of your test suggest a potential material misstatement in revenues? Explain! (6 marks)