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CA Intermediate · Auditing and Ethics · Completion and Review

While completing the audit of Narmada Cements Ltd, the auditor evaluates uncorrected misstatements accumulated during the audit. Individually the misstatements are below the clearly trivial threshold in some cases and above it in others. Management declines to correct the identified misstatements. Which action aligns with SA 450 (Evaluation of Misstatements Identified during the Audit)?

The auditor should request correction, understand management's reasons for refusing, evaluate individually and in aggregate whether the financial statements are materially misstated, communicate uncorrected misstatements to those charged with governance and obtain a written representation, as SA 450 requires. The auditor must not pass entries in the client's books.

  1. AIgnore all uncorrected misstatements because management has the final responsibility
  2. BRequest management to correct them, and if it refuses, understand its reasons and evaluate, individually and in aggregate, whether the financial statements are materially misstated, communicating with those charged with governance and obtaining a written representationCorrect
  3. CCorrect them directly in the books of the company by passing journal entries
  4. DTreat all as clearly trivial and omit them from the summary

Explanation

SA 450 requires the auditor to communicate misstatements on a timely basis to management and request correction. If management refuses, the auditor obtains an understanding of its reasons and takes them into account when evaluating whether the statements are materially misstated, individually or in aggregate. Uncorrected misstatements are communicated to those charged with governance and written representations are sought. Auditors do not pass entries in the client's books, as that would impair independence.

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