Explain the difference between known and likely misstatements. Assume the auditor tests a sample of $100,000 of inventory and finds misstatements totaling $5,000. What is the likely misstatement if the account balance is $500,000?

AUDIT PLANNING AND MATERIALITY

1. What is meant by setting a preliminary judgment about materiality? Identify the mostimportant factors affecting the preliminary judgment.
2. Distinguish between the terms performance materiality and preliminary judgment about materiality. How are they related to each other?
3. Explain the difference between known and likely misstatements. Assume the auditor
tests a sample of $100,000 of inventory and finds misstatements totaling $5,000. What
is the likely misstatement if the account balance is $500,000?

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