14.5, 14.6// MM+Evaluating op

Question 1

Misstatements

Answer 1

1.difference between reported FS item and the correct reporting FS item accounting to acc stds. it involves reported amt, disclosure, classification or presentation of FS item

2.misstatement in disclosure includes the inappropriate aggregation and disaggregation of info, missing or incomplete disclosure or omission from a sig. disclosure for FS to be fairly presented.

Question 2

error+ on wards steps

Answer 2

1.error is the unintentional misstatement including omission of amt and disclosure.

2.when an error is identified, first step is to find the reason behind this error. this can result in increasing sample size to ensure that no other errors are found.
increasing sample size is not necessary in the case when total error can be quantified without performing additional prdrs e.g in audit data analytic

3. important that when an error is identified that testing continues until adtr find that material error does not exist within that acc.

Question 3

conclusion abt mistatement

Answer 3

1. for correction, adtr will evaluate if the misstaement causes the FS to be materially misstated or requires additional infor while considering qualitativeand quantitative information

Question 4

conclusion abt mistatement quantitative and qualitative information

Answer 4

1. risk of additional misstatement being undetected
2. effects of identified misstatement on covenant debts and other agreement

3.whether misstatement is a result of error of judgmental misstatement.

4. the effects of reversing uncorrected misstatement in current year
5. consideration to accumulated immaterial difference having material effects in the future

6.the offsetting effects in different sections of the FS for e.g overstated revenue offset by overstated expenses

7. context of misstatement such as arising from fraud or illegal actions
8. how this misstatement affect users need e.g purchase price affected

9.significance of misstatement on other items on FS and its disclosure

Question 5

CY misstatement

Answer 5

1.when identified mstmnt are not corrected , the adtr will prepare a working paper and include all identified misstatements to assess their impact on FS

2. adtr also consider these misstatement against specific items like profit before tax
3. should consider cumulative effect on pre tax income and net income, working capital and shareholders’ equity
4. should determine if the client corrects all the misstatement in CY then its impact on future FS even tho the misstatement are not material in CY

Question 6

PY misstatement

Answer 6

1.when client did not correct prior misstatement which had no material impact on the FS back then, adtr should consider its cumulative effect on current FS

2.when misstatement identified in prior year , they can be reverse in the next year e.g expenses understated owing to an error can be reversed next year. it

3. should be noted that only Msst from errors and fraud can be reversed and those from judgmental mssnt may not
4. professional judgment involved when considering materiality of unrecorded mssnt and there is need to consider quantitative data and qualitative data

Question 7

PY misstatement quantitative

Answer 7

1.changing profit to losses
2,indivudual line changing their amt
3.key ratios that are monitored

Question 8

PY misstatement qualitative

Answer 8

1. compliance with contractual agreement
2. change in compliance with regulatory requirements for debts convenant
   3.mgt satisfaction for awarding compensations like bonuses

Question 9

Evaluating conclusions and forming an opinion

Answer 9

objective of the adtr is to assess all the evidence gathered to determine if sufficient t appropriate evidence has been obtain to help bring the adt risk to an acceptably low level

opinion is formed based on:

-evaluate all the adt evidence gathered
-evaluate the effects of unrecorded mssnt identified and the qualitative aspects involved
-evaluate if FS prepared and presented according to accounting standards and applicable reporting framework
-evaluate fair presentation of FS