ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error
Marlowe plc's finance director asks the audit team to explain the two types of intentional misstatement that are relevant to the auditor under ISA 240. Which pair is correct?
The two types are fraudulent financial reporting and misappropriation of assets. ISA 240 defines these as the intentional misstatements relevant to the auditor. Errors are unintentional, so they are excluded, and estimation uncertainty or legal non-compliance falls outside these two fraud categories.
- AMisstatements from fraudulent financial reporting and misstatements from misappropriation of assetsCorrect
- BMisstatements from management bias and misstatements from estimation uncertainty
- CMisstatements from non-compliance with laws and misstatements from related party transactions
- DMisstatements from fraudulent financial reporting and misstatements from unintentional errors
Explanation
ISA 240 identifies two types of intentional misstatement relevant to the auditor: fraudulent financial reporting and misappropriation of assets. Unintentional errors are not intentional, and estimation uncertainty or bias is not itself a fraud category. Non-compliance with laws is dealt with under ISA 250.
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