Prior year material misstatement

Generally 1 mark per point explained:

– The prior year error is material at 6% of profit for 2013
– A prior year adjustment is required
– If no adjustment is made the audit opinion for 2014 will be modified
– The client must be informed of the error
– Potential for legal action against the audit firm
– Audit of 2014 financial statements to include procedures on the prior year adjustment
– Quality control on prior year audit was lacking and should be investigated
– May be implications for firm-wide quality control procedures

Maximum marks 5