CA Intermediate · Auditing and Ethics · Completion and Review
In the audit of Meera Foods Ltd, the auditor lists uncorrected misstatements of Rs 2 lakh in aggregate, against a materiality of Rs 10 lakh for the financial statements as a whole. Management declines to correct them, saying they are clearly immaterial. Which action reflects SA 450?
The auditor should communicate the uncorrected misstatements to those charged with governance, explain their possible effect on the opinion, and obtain a written representation that management believes their effects are immaterial. SA 450 requires this even when the aggregate is below materiality, and a qualification is not automatically needed.
- AIgnore them because they are below materiality and need no further communication
- BCommunicate the uncorrected misstatements to those charged with governance, explain their effect on the opinion, and request a written representation that the effects are immaterialCorrect
- CIssue a qualified opinion because management refused to correct them
- DInsist that the audit report disclose each individual misstatement
Explanation
SA 450 requires the auditor to communicate uncorrected misstatements to those charged with governance and the effect they may have on the opinion, and to request written representation on whether management believes their effects are immaterial. A qualification is not automatic because the aggregate is below materiality. Ignoring them is wrong since communication and a representation are still required.
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