ESTIMATE MISSTATEMENT AND COMPARE WITH
PRELIMINARY JUDGMENT
1. What is meant by setting a preliminary judgment about materiality? Identify the most
important 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?
