Page 474 - CA Final PARAM Digital Book.

• Judgments of management concerning accounting estimates that the auditor
considers unreasonable or the selection and application of accounting policies
that the auditor considers inappropriate.
• An incorrect accounting estimate arising from overlooking, or clear
misinterpretation of facts; and

QNO Impact of Uncorrected Misstatement Old Course – (N14E, P17M, N17E)
55.000 TITANIUM CNO--SA450.040
The auditor of XY & Co Ltd has intimated the management that certain misstatements identified during
the course of audit need to be corrected as an auditor, discuss the impact of such misstatements in

case the management does not carry out the said corrections.
Answer Part I -- Relevant Standards & Laws
▪ SA 450, Evaluation of Misstatements identified during the Audit

Part II -- Requirements of Relevant Standards & Laws
(In this particular question points 1 to 4 were not required, but it is good to write them and easier to
remember only one full 10 points answer, so if you are short of time only write 5 to 10)
➢ Accumulate misstatements unless clearly trivial.
The auditor shall accumulate misstatements identified during the audit, other than those that are
clearly trivial.

➢ Revision of Overall Audit Strategy & Audit Plan: -
if aggregate misstatement reaches materiality or if aggregate misstatements &
other misstatements which may exist together reaches materiality.
The auditor shall determine whether the overall audit strategy and audit plan need to be
revised if:
• The nature of identified misstatements and the circumstances of their occurrence
indicate that other misstatements may exist that, when aggregated with
misstatements accumulated during the audit, could be material; or
• The aggregate of misstatements accumulated during the audit approaches
materiality determined in accordance with SA 320.

➢ Communicate on timely basis all misstatements and request to correct them.
The auditor shall communicate on a timely basis all misstatements accumulated during the audit
with the appropriate level of management, unless prohibited by law or regulation. The auditor shall
request management to correct those misstatements.

➢ Additional Audit Procedure to check corrections.
If, at the auditor’s request, management has examined a class of transactions, account balance or
disclosure and corrected misstatements that were detected, the auditor shall perform additional
audit procedures to determine whether misstatements remain.

➢ Mgt Refusal / Uncorrected Misstatement: - If Mgt refuses understand reasons & evaluate
whether FST are materially misstated
If management refuses to correct some or all of the misstatements communicated by the auditor,
the auditor shall obtain an understanding of management’s reasons for not making the corrections
and shall take that understanding into account when evaluating whether the financial statements
as a whole are free from material misstatement.

➢ Reassesses materiality before evaluating impact of uncorrected misstatements.
Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality
determined in accordance with SA 320 to confirm whether it remains appropriate in the context of
the entity’s actual financial results.

➢ While Evaluation impact of misstatements consider them individually or in aggregate.
Consider size as well as nature of misstatement at TBD level and FST level/ Also
consider effect of uncorrected misstatements of prior periods while aggregating
misstatements.

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