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CA Intermediate · Auditing and Ethics · Completion and Review

During the audit of Kaveri Textiles Ltd, the auditor, CA Meena, has completed substantive procedures and is about to form an opinion. Before concluding, she wants to evaluate whether the financial statements as a whole are free from material misstatement, using the misstatements she has accumulated. Which of the following is the correct audit response under SA 450 regarding the accumulated misstatements?

The auditor should communicate all accumulated misstatements to the appropriate level of management on a timely basis and request that they be corrected. Management, not the auditor, is responsible for the financial statements. Only clearly trivial items may be excluded from accumulation, so ignoring small ones is wrong.

  1. ACommunicate on a timely basis all misstatements accumulated during the audit to the appropriate level of management and request that they be correctedCorrect
  2. BCommunicate only the misstatements that exceed overall materiality to those charged with governance, and ignore the rest
  3. CCorrect the misstatements herself in the books of account, since the auditor is responsible for the financial statements
  4. DDiscard misstatements that are below performance materiality, as they need not be accumulated

Explanation

SA 450 requires the auditor to communicate all misstatements accumulated during the audit on a timely basis to the appropriate level of management and request correction. The auditor does not correct the books herself because management is responsible for the financial statements. Only misstatements that are clearly trivial may be left out of accumulation, not those merely below performance materiality.

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