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    Basking Answer

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    Ajith George
    1) The document discusses types of misstatements that may occur in an audit including factual, judgmental, and projected misstatements and the appropriate auditor responses. 2) It provides examples of potential misstatement issues involving depreciation sampling, related party disclosures, and provisions for refund. 3) For each issue, it describes determining if the misstatement is material or immaterial, discussing with management, and forming an audit opinion. The appropriate action is to issue a modified opinion if management refuses to rectify a material misstatement.

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    Basking Answer

    Uploaded by

    Ajith George
    24 views2 pages
    1) The document discusses types of misstatements that may occur in an audit including factual, judgmental, and projected misstatements and the appropriate auditor responses. 2) It provides examples of potential misstatement issues involving depreciation sampling, related party disclosures, and provisions for refund. 3) For each issue, it describes determining if the misstatement is material or immaterial, discussing with management, and forming an audit opinion. The appropriate action is to issue a modified opinion if management refuses to rectify a material misstatement.

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    1) The document discusses types of misstatements that may occur in an audit including factual, judgmental, and projected misstatements and the appropriate auditor responses. 2) It provides examples of potential misstatement issues involving depreciation sampling, related party disclosures, and provisions for refund. 3) For each issue, it describes determining if the misstatement is material or immaterial, discussing with management, and forming an audit opinion. The appropriate action is to issue a modified opinion if management refuses to rectify a material misstatement.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    24 views2 pages

    Basking Answer

    Uploaded by

    Ajith George
    1) The document discusses types of misstatements that may occur in an audit including factual, judgmental, and projected misstatements and the appropriate auditor responses. 2) It provides examples of potential misstatement issues involving depreciation sampling, related party disclosures, and provisions for refund. 3) For each issue, it describes determining if the misstatement is material or immaterial, discussing with management, and forming an audit opinion. The appropriate action is to issue a modified opinion if management refuses to rectify a material misstatement.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Basking

    a) Types of misstatement anad their relevance in Audit

    ISA 450 – 3 types of misstatement


    1. Factual Misstatement – no doubt whether it is a misstatement or not. Sure that it is a mis
    statement, There is little scope for discussions with the a mangement. Just need to ask
    management to correct it
    2. Judgmental Misstatements – Auditors judgement differs from that of client management
    Auditor should collect SAAE to disprove management judgment – after tat will request the
    management to correct it.
    This should be handled by senior and experienced audit member
    3. Projected Misstatement – Audit is done on sampling basis, errors found in sample is
    assumed to repeat in population. Extended testing by increase the sample size to ensure the
    misstatement , Once ensured then ask the management to correct it
    b)
    4-5 ponts ,analysis – IFRs stds, evaluation –effect on AR, Sckeptism – material or pervasive, alert
    for situations of mis-statements
    4-5 points – opinion
     Depreciation
    Projected misstatement-
    Sampling prpcedure –
    Steps
    1. Matters to be discussed – explain the misstatement
    2. Find out the type of misstatement
    3. Calculate the Materiality –on Asset, Revenue and profit
    4. Effect on FS
    5. Mgmt ‘s decision
    6. Forming an opinion
    7. Reporting in the AR
    i) Depreciation Sampling issue
    Sample error is immaterial and projected samling is also immaterial
    Ask mgmt. about the error
    Ask the mgmnt to correct the same in the accounting software

    Opinion
    Immaterial and not pervasive , issue unmodified opinion after ensuring that accounting
    system is corrected and the errors are corrected , and will not occur in future
    So that fs can give true and fair view
    ii) Related Party Loan – non-Disclosure
    The loan to Mrs. C KMP of Basking co, treated as a RP transaction, as KMP is treated as RP to
    the entity, even though the Value of loan is trivial it should disclose in the FS.
    IAS 24 - Related Party Transaction – any related party transaction should disclose whether it
    is material of immaterial. It is a Factual misstatement.
    By nature non-disclosure is a material misstatement
    Auditor should discuss with mgmt. the relevance of disclosing the RP transaction and gve
    details of amount date, interest , period of loan in notes to accounts

    Opinion
    If the mgmt. refuses to disclose about the loan to Mrs .C then material but unlikely
    pervasisiv
    It would appropriate to issue a modified opinion ‘except for’ opinion in a modified report. In
    the basis of opinion paragraph the auditor should state reasons for modifying the opinion.
    iii) Provisions for Refund

    Judgemental misstatement
    Materiality
    Matters to be discussed
    A provision of 7% is need to provide $328 m instead 4% given. Judgemental misstatement
    and as a result provision reduced by $140 m
    This would have reduce the liability and increased the profits of Basking
    The judgemental misstatement forms 5.5% of Basking profit and 0.37% of their total assets
    Hence it is material to SOPL and immaterial to SOFP
    The audit team could not get SAAE to support mh=gmt judgement regarding system
    improvement.
    The audit team should maintain Professional Sckeptisism to undertake earning
    management. They have to be alert to other areas of financial statement involves estimate
    and judgement
    Auditr should discuss with mgmt. to give evidence to the team for support system
    improvement and critically assess the same.
    If they could not provide the same then auditor should ask themgmmt to rectify the same.

    Opinion
    If management refuses to rectify the same then matter would be consider as material
    misstatement and it is unlikely to be a pervasive matter as it is not impacting the totality of
    FS
    Auditor should issue a qualified report with a modified opinion as ‘except for’ in modified
    reort and explain the matters in basis of opininon para.

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