Evaluation of Misstatements Flashcards
What are the 3 types of misstatements?
Factual —misstatements about which there is no doubt.
Judgmental — These are misstatements that arise when management applies accounting estimates or selects and applies accounting policies that the practitioner considers to be unreasonable or inappropriate.
Projected — These are misstatements that are derived from the practitioner’s best estimate of a misstatement in a population. These misstatements are calculated by projecting misstatements identified in audit samples to the entire representative population from which the sample was drawn.
What to do when fraud is suspected?
Discuss the matter with the appropriate level of management — at least one level above those involved.
Discuss the matter with the client’s audit committee.
Consider the professional and legal responsibilities.
Consider withdrawing from the engagement in cases where the client fails to take the actions that are necessary or there are significant concerns about the integrity of the management or audit committee.
What to if management is unwilling to correct the misstatements?
if mgmt is unwilling to correct the statements, then need to bring it to the attention of TCWG.
If the errors remain unadjusted, receive a written confirmation from TCWG as to the effects of the misstatements then consider whether a qualified opinion should be issued.
What do when errors or misstatements are identified?
Accumulate the errors in a schedule, see what the mgmt has corrected and check if the unadjusted errors are material?
When to issue an adverse opinion?
When the errors can’t be isolated and easily explained
When to issue a disclaimer of opinion?
When sufficient and appropriate evidence can’t be obtained
