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CA Intermediate · Auditing and Ethics · Completion and Review

While auditing Kaveri Textiles Ltd for the year ended 31 March, CA Meera finds that the audit team has completed all planned procedures. Before signing her report, she wants to evaluate whether the financial statements as a whole are free from material misstatement. Under SA 450, which step is required of her regarding misstatements accumulated during the audit?

The auditor should communicate all accumulated misstatements promptly to the appropriate level of management and request correction. Management, not the auditor, prepares and corrects the financial statements. Only clearly trivial matters are excluded from accumulation, and reporting to the Registrar is not the first step under SA 450.

  1. AIgnore all misstatements below the clearly trivial threshold and also those above it if management refuses to correct them
  2. BCommunicate on a timely basis all accumulated misstatements to the appropriate level of management and request that they be correctedCorrect
  3. CCorrect the misstatements herself in the books of account, since the auditor is responsible for the financial statements
  4. DReport all misstatements directly to the Registrar of Companies before discussing them with management

Explanation

SA 450 requires the auditor to communicate on a timely basis all misstatements accumulated during the audit with the appropriate level of management and request that they be corrected. Clearly trivial items are not accumulated, but items above that threshold must be, so the first option is wrong. Preparing the financial statements is management's responsibility, so the auditor does not correct the books.

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