Concepts and Standards - Evaluation of Misstatements Identified During the Audit

Question 1

What are some type of a known misstatement?

Answer 1

Differences between management and the auditor’s judgment regarding estimates.

Why?

the professional standards consider differences in estimates as “other estimated misstatements,” not “known misstatements.”

Question 2

The term judgmental misstatement would best apply to

Answer 2

Management’s unreasonable accounting estimates for uncollectible receivables.

Note:

The definition of judgmental misstatements includes unreasonable accounting estimates (as well as the selection of inappropriate accounting policies).

Question 3

An auditor is not required to document

Answer 3

Senior management’s awareness of (and agreement with) the tolerable misstatement specified by the auditor for material elements of the financial statements.

Question 4

Considered as a type of factual misstatement,

Answer 4

An inaccuracy in accounting processing data.

The misapplication of accounting principles.

A difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles.

Note:

Differences between management and the auditor’s judgment regarding accounting estimates.

Question 5

Misstatements discovered by the auditor were immaterial in the aggregate in prior years. Such misstatements should be

Answer 5

Considered in the evaluation of audit findings in the current year.

Note:

In determining whether identified (uncorrected) misstatements are material in the aggregate, the auditor should take into consideration the effects of relevant misstatements identified in a prior period, even if they were deemed immaterial in the prior period.

Question 6

In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that

Answer 6

Involves an estimate.

Note:

AICPA Professional Standards describe the term “judgmental misstatement” as follows: ”differences in estimates, such as a difference in a fair value estimate” (AU-C 450.A11).

Question 7

For all (non-trivial) factual misstatements identified by the auditor, the auditor should

Answer 7

Communicate the matters to the appropriate level of management to request correction.

Note:

The auditor should request management to correct (non-trivial) identified factual misstatements.