Evaluation of Misstatements identified during the audit

Question 1

Define “misstatement.”

Answer 1

A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and that which is required for the item to be in accordance with the applicable reporting framework.

Question 2

What is meant by the term “factual misstatements”?

Answer 2

Misstatements for which there is no doubt.

Question 3

What is meant by the term “judgmental misstatements”?

Answer 3

Differences arising from the judgments of management that the auditor considers unreasonable; or the selection of accounting policies deemed inappropriate.

Question 4

What is meant by the term “projected misstatements”?

Answer 4

The auditor’s best estimate of misstatements in populations suggested by audit sampling (The AICPA formerly used the term “likely error” for this concept.)

Question 5

Describe the auditor’s responsibility to accumulate misstatements identified during the audit.

Answer 5

The auditor should accumulate identified misstatements, except for those that are clearly trivial. (“Clearly trivial” means clearly inconsequential.)

Question 6

The auditor must document what matters in connection with the evaluation of misstatements?

Answer 6

1. )The threshold for determining what is viewed as clearly trivial.
2. )All misstatements accumulated during the audit (and whether they have been corrected).
3. )The auditor’s conclusion as to whether any uncorrected misstatements are material (individually or in the aggregate), and the basis for that conclusion.