This 20-mark question was based on Minnie Co and tested candidates’ knowledge of misstatements, placing reliance on the work of an expert and audit reports.

Part (a) for 4 marks required an explanation of the term “misstatement” and a description of the auditor’s responsibility in relation to misstatements. This question was unrelated to the scenario, and was not answered well by many candidates. Most candidates were able to gain 1 mark by explaining that a misstatement was an error, however they could not then explain the auditor’s responsibility.

ISA 450 Evaluation of Misstatements Identified During the Audit provides guidance on this area. This is a relatively new ISA and was issued as part of the clarity project. As this ISA had not yet been tested then this is an area which should have been prioritised by candidates. However, many candidates clearly had not studied this area at all.

They therefore provided answers which focused on the auditor’s responsibilities to provide an opinion on the truth and fairness of the financial statements or to detect material misstatements. In addition a minority of candidates produced answers which focused on materiality.