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CA Intermediate · Auditing and Ethics · Completion and Review

During the audit of Bharat Components Ltd, CA Rohan identifies misstatements: an unrecorded expense of Rs 2 lakh in the period which management declines to correct, and an overstated inventory of Rs 1 lakh which management also declines to correct. Overall materiality is Rs 10 lakh and the clearly trivial threshold is Rs 50,000. What is the correct approach under SA 450 (Evaluation of Misstatements Identified during the Audit)?

The auditor should accumulate both misstatements because each exceeds the clearly trivial threshold, communicate them to those charged with governance, request correction, and obtain a written representation on the uncorrected ones. Being below overall materiality does not make them trivial, and the opinion is not automatically qualified.

  1. ATreat both as trivial since the total of Rs 3 lakh is below materiality, so no communication is needed
  2. BAccumulate both misstatements, communicate them on a timely basis to those charged with governance, request correction, and obtain written representation on uncorrected onesCorrect
  3. CCommunicate only the Rs 2 lakh item because it is the larger one
  4. DQualify the opinion automatically because management refused to correct

Explanation

Under SA 450, all misstatements above the clearly trivial threshold (Rs 50,000) must be accumulated. Both items exceed it, so they are communicated to those charged with governance, correction is requested, and the effect of uncorrected items is addressed in the written representation. Being below materiality does not make them trivial. Modification depends on whether the uncorrected total is material, which Rs 3 lakh is not against Rs 10 lakh.

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