9-26 a. The direct projection of error = (misstatements/amount) sampled x population value. ($10,000/$1,000,000) x $2,500,000 = $25,000
b. No, the overall financial statements are not acceptable. Including the projected error for inventory, the total overstatement errors are $58,000, which exceeds materiality of $50,000.
c. The auditor should either propose an audit adjustment so that the unadjusted statement amount is less than materiality, and/or perform more testing to obtain a better estimate of the population misstatements. The additional testing will likely focus on receivables and inventory because they have the largest estimated misstatements.
9-28 a. The following terms are audit planning decisions requiring professional judgment:
Preliminary judgment about materiality
Risk of fraud
Planned detection risk
Acceptable audit risk
Risk of material misstatement
b. The following terms are audit conclusions resulting from application of audit procedures and requiring professional judgment:
Estimated total misstatement in a segment
Estimate of the combined misstatement
c. It is acceptable to change any of the factors affecting audit planning decisions at any time in the audit if indicated by changes in circumstances. The planning process begins before the audit starts and continues throughout the engagement. Some of the factors would be least likely to be changed after the audit is 95% completed. For example, the performance materiality would not be raised at the end of the audit after the accumulated audit evidence suggests there are material misstatements that exceed the initial preliminary materiality amount.
9-29 a. True. A CPA firm should attempt to use reasonable uniformity from audit to audit when circumstances are similar. The only reasons for having a different audit risk in these circumstances are the lack