Lesson: Tolerable Misstatement

This lesson delves into the concept of tolerable misstatement, which refers to the maximum amount that financial statements can be misstated before they are considered misleading. Emphasizing the importance of an auditor's professional judgment in determining tolerable misstatement, the lesson also highlights the inverse relationship between tolerable misstatement and the likelihood of uncorrected and undetected misstatements. Additionally, the lesson covers the importance of taking into account misstatements accumulated in prior periods when determining a tolerable misstatement threshold, as these misstatements could potentially mislead investors over time.