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Syllabus E. Review And Reporting E4. Audit finalisation and the final review

Ec/E4d. Evaluation of Misstatements

Syllabus Ec/E4d)

E4c) Explain the significance of uncorrected misstatements.
E4d) Evaluate the effect of dealing with uncorrected misstatements.

Material Misstatements normally lead to qualifying the audit report

Misstatements aren't just monetary figures, they could also be incorrect classification or disclosures

Evaluating Misstatements

  1. Get a list of misstatements found

  2. Discuss these with management at the end of the audit

  3. Management will normally correct these

  4. Any remaining material misstatements will cause the auditor to qualify the report

Aggregation of Immaterial Errors

  • Immaterial errors could aggregate to become material

  • These will be brought to the attention of management

  • If management amend material errors, then the auditor will issue an unqualified audit report

  • If management refuse to adjust the errors then the auditor must persuade them to do so or issue a qualified audit report

All misstatements found must be communicated to those charged with governance

This is to ensure that no management bias exists in the decision taken on what constitutes an ‘immaterial misstatement’

Management must also provide written representations that all uncorrected errors are immaterial