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Interpretation and Application of International Standards on Auditing by Steven Collings

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17

ISA 450 (REVISED AND REDRAFTED) EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT

During the course of an audit, the auditor may discover misstatements within the financial statements. ISA 450 requires the auditor to evaluate the effect of identified misstatements on the audit and also to evaluate the effect of any uncorrected misstatements when forming an opinion on the financial statements. This is important, particularly in terms of reconsidering materiality (ISA 320).

ISA 450 defines a misstatement as:

A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud.

When the auditor expresses an opinion on whether the financial statements are presented fairly, in all material respects, or give a true and fair view, misstatements also include those adjustments of amounts classifications, presentation, or disclosures that, in the auditor’s judgement, are necessary for the financial statements to be presented fairly, in all material respects, or to give a true and fair view.

[ISA450.4 (a)]

Uncorrected misstatements are those misstatements which have been identified by the auditor during the course of their audit which have not been corrected.

Misstatements arise from inaccurate gathering and processing of information ...

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