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CA Intermediate · Auditing and Ethics · Completion and Review

At the end of the audit of Nilgiri Tea Estates Ltd, the auditor finds uncorrected misstatements: an overstated inventory of Rs 4 lakh and an understated expense of Rs 3 lakh. Overall materiality is Rs 20 lakh and clearly trivial threshold is Rs 1 lakh. Management declines to correct them. What is the auditor's correct action under SA 450?

The auditor should accumulate the misstatements, communicate them to those charged with governance, request correction, evaluate their combined effect, and obtain a written representation about the uncorrected ones. SA 450 does not allow ignoring them merely because they are below materiality, nor does the auditor correct the books personally.

  1. AIgnore them completely as both are below materiality
  2. BAccumulate them, communicate them to those charged with governance, request correction, obtain a written representation on the effect of uncorrected misstatements, and evaluate their effect on the opinionCorrect
  3. CCorrect them directly in the books of accounts of the company
  4. DIssue an adverse opinion because management refused to correct

Explanation

SA 450 requires the auditor to accumulate misstatements above the clearly trivial threshold, communicate them on a timely basis, request correction, and evaluate effect individually and in aggregate. A written representation about uncorrected misstatements is also obtained. Here the total of Rs 7 lakh is below Rs 20 lakh, so a modified opinion is not warranted, but ignoring them is wrong.

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