You are assigned to audit accounts payable for a manufacturing client. As part of the planning, your manager sets a tolerable misstatement amount of+/- $125,000. Your review of unpaid invoices indicates an understatement error of $25,253 from a sample of $675,467. The population value of A/P is $5,241,687 at October 31st. The lower amount of the tolerable misstatement assuming the client booked an adjusting entry for the known errors (rounded) is:
A) $5,391,940.
B) $5,241,687.
C) $5,141,940.
D) $5,266,940.

Question

Quizplus · Accepted Answer

The lower amount of the tolerable misstatement is calculated by subtracting the tolerable misstatement from the population value of A/P. $5,241,687 - $125,000 = $5,116,687. However, since the client booked an adjusting entry for the known understatement error of $25,253, the adjusted population value becomes $5,241,687 + $25,253 = $5,266,940. Therefore, the lower amount of the tolerable misstatement is $5,266,940 - $125,000 = $5,141,940.

You Are Assigned to Audit Accounts Payable for a Manufacturing