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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review

Marlow Audit is finishing the audit of Quartz Ltd. Uncorrected misstatements total 90,000 against overall materiality of 400,000. However, the misstatements turn a reported loss into a small profit, and the profit figure triggers a bonus for the directors. Which conclusion best reflects ISA 450 and ISA 320 principles?

The misstatements should be treated as material by nature, even though below the quantitative threshold, because they convert a loss into a profit and trigger directors' bonuses. The auditor should request correction and, if management refuses, consider modifying the opinion under ISA 705.

  1. AThe misstatements are immaterial because 90,000 is less than 400,000, so no modification is needed
  2. BThe auditor should consider the misstatements material by nature, because they affect a trend or covenant/remuneration matter, and request correction, modifying the opinion if uncorrectedCorrect
  3. CThe auditor should simply reduce overall materiality to 90,000 for future years only
  4. DThe auditor must withdraw from the engagement immediately

Explanation

ISA 450 states that circumstances related to some misstatements may cause them to be evaluated as material even if below materiality, for example where they turn a loss into a profit or affect remuneration. The auditor requests correction and, if management refuses, considers a qualified opinion under ISA 705. Option A ignores qualitative factors. Withdrawal is not automatic.

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