ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review
Overall materiality for Tallis Co is $400,000 and the clearly trivial threshold is $20,000. At the completion stage the auditor has found these uncorrected misstatements: an overstatement of inventory of $150,000, an understatement of accruals of $120,000, and an overstatement of receivables of $60,000. Management refuses to adjust any of them. Which approach to evaluating them is correct under ISA 450?
The auditor should accumulate the misstatements, ask management to correct them, and assess their effect individually and in aggregate, including qualitative factors. The $330,000 total is close to the $400,000 materiality, so it cannot simply be ignored, and the risk of undetected misstatement must also be considered.
- AAggregate them as $330,000, which is below materiality, so they can be ignored
- BConsider them individually only, since each is below materiality
- CAccumulate them, consider the effect on the financial statements as a whole and on qualitative factors, and request management to correct themCorrect
- DTreat only the inventory item as relevant because it is the largest
Explanation
ISA 450 requires the auditor to accumulate misstatements above the clearly trivial level, ask management to correct them, and evaluate the effect of uncorrected items individually and in aggregate, including qualitative factors. The total of $330,000 is below $400,000 but is close to materiality, and the evaluation should consider whether the aggregate with undetected misstatement could be material. It must not be ignored.
Did you get it right without looking?
One question tells you little. A timed set on Completion and final review shows your real accuracy, how long you take and where you lose marks.
More Completion and final review questions
- While performing the overall analytical review at completion of the audit of Corvus Ltd, the auditor finds that the gross margin has risen f…
- During the final review of the audit of Larkspur Co, the audit senior notes that misstatements found during the audit were individually belo…
- In the audit of Meridian Foods, the audit partner is deciding which matters to communicate to those charged with governance (TCWG) under ISA…
- Auditors of Bluebell Services are concerned that the finance director, who has signed the representation letter in previous years, has been …
- Near completion of the audit of Quill Co, the auditor notes management's draft going concern disclosures were inadequate. Management refuses…
- Orchid plc's auditor has completed fieldwork and wishes to identify events between the period end and the date of the auditor's report. Whic…