Document ID: chunk:federal_register_of_legislation:F2017C00907:reg:15:p6
Version: federal_register_of_legislation:F2017C00907
Segment Type: reg
Provision Reference: reg 15 (pt 6/12)
Character Range: 23668–26832

of Identified Misstatements as the Audit Progresses (Ref: Para. 6‑7)

A7.             A misstatement may not be an isolated occurrence.  Evidence that other misstatements may exist include, for example, where the auditor identifies that a misstatement arose from a breakdown in internal control or from inappropriate assumptions or valuation methods that have been widely applied by the entity.

A8.             If the aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ASA 320, there may be a greater than acceptably low level of risk that possible undetected misstatements, when taken with the aggregate of misstatements accumulated during the audit, could exceed materiality.  Undetected misstatements could exist because of the presence of sampling risk and non‑sampling risk.[10]

A9.             The auditor may request management to examine a class of transactions, account balances or disclosures in order for management to understand the cause of a misstatement identified by the auditor, perform procedures to determine the amount of the actual misstatement in the class of transactions, account balance or disclosure, and to make appropriate adjustments to the financial report.  Such a request may be made, for example, based on the auditor's projection of misstatements identified in an audit sample to the entire population from which it was drawn.

Communication and Correction of Misstatements (Ref: Para. 8‑9)

A10.         Timely communication of misstatements to the appropriate level of management is important as it enables management to evaluate whether the classes of transactions, account balances and disclosures are misstated, inform the auditor if it disagrees, and take action as necessary.  Ordinarily, the appropriate level of management is the one that has responsibility and authority to evaluate the misstatements and to take the necessary action.

A11.         In some jurisdictions, law or regulation may restrict the auditor's communication of certain misstatements to management, or others, within the entity.  Law or regulation may specifically prohibit a communication, or other action, that might prejudice an investigation by an appropriate authority into an actual, or suspected, illegal act, including alerting the entity, for example, when the auditor is required to report identified or suspected non-compliance with law or regulation to an appropriate authority pursuant to anti-money laundering legislation.  In these circumstances, the issues considered by the auditor may be complex[*] and the auditor may consider it appropriate to obtain legal advice.

A12.         The correction by management of all misstatements, including those communicated by the auditor, enables management to maintain accurate accounting books and records and reduces the risks of material misstatement of future financial reports because of the cumulative effect of immaterial uncorrected misstatements related to prior periods.

A13.         ASA 700 requires the auditor to evaluate whether the financial report is prepared and presented, in all material respects, in accordance