Evaluation of Misstatements Identified During the Audit Flashcards
Each of the following is a type of a known misstatement, except
An inaccuracy in processing data.
The misapplication of accounting principles.
Differences between management and the auditor’s judgment regarding estimates.
A difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles.
Differences between management and the auditor’s judgment regarding estimates.
This is correct because the professional standards consider differences in estimates as “other estimated misstatements,” not “known misstatements.”
An auditor is not required to document
Identified material misstatements that have been corrected by management.
The basis for the auditor’s determination of materiality levels used.
Senior management’s awareness of (and agreement with) the tolerable misstatement specified by the auditor for material elements of the financial statements.
The auditor’s conclusion as to whether any misstatements that management chose not to correct are, in fact, material.
Senior management’s awareness of (and agreement with) the tolerable misstatement specified by the auditor for material elements of the financial statements.
The auditor should not divulge to management the specific levels of materiality used or the materiality levels allocated to individual elements of the financial statements. So obtaining such agreement would not be appropriate.
Misstatements discovered by the auditor were immaterial in the aggregate in prior years. Such misstatements should be
Considered in the evaluation of audit findings in the current year.
Disclosed by the client in the current-year financial statements.
Retested during the current-year tests of controls.
Removed from the prior-year summary because they were immaterial.
Considered in the evaluation of audit findings in the current year.
Correct! 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.
For all (non-trivial) factual misstatements identified by the auditor, the auditor should
Request management to review their assumptions and methods used to develop a more appropriate accounting estimate.
Communicate the matters to the appropriate level of management to request correction.
Obtain an understanding of management’s justification and modify the audit report to express an adverse opinion.
Make the appropriate adjusting journal entries to correct the identified misstatements.
Communicate the matters to the appropriate level of management to request correction.
The auditor should request management to correct (non-trivial) identified factual misstatements.
Each of the following might be considered as a type of factual misstatement, EXCEPT
An inaccuracy in accounting processing data.
The misapplication of accounting principles.
Differences between management and the auditor’s judgment regarding accounting estimates.
A difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles.
Differences between management and the auditor’s judgment regarding accounting estimates.
Differences between management and the auditor in making judgments about accounting estimates are included in the definition of judgmental misstatements and would not normally be included among known misstatements.
The term judgmental misstatement would best apply to
Management’s unreasonable accounting estimates for uncollectible receivables.
Sales transactions that were recorded but not yet shipped as of year-end.
Unrecorded payables associated with goods received in the last month of the entity’s fiscal year.
The auditor’s estimate of a misstatement in a population suggested by audit sampling techniques.
Management’s unreasonable accounting estimates for uncollectible receivables.
The definition of judgmental misstatements includes unreasonable accounting estimates (as well as the selection of inappropriate accounting policies).
In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that
Involves an estimate.
Exists because of nonstatistical sampling performed by the auditor.
Arises from a flaw in the accounting system.
Arises from a routine calculation.
Involves an estimate.
CORRECT! 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).
