ISA 450 (Redrafted) — Evaluation of Misstatements Identified during the Audit

ISA 450 (Redrafted) DEALS with the auditor’s responsibility to EVALUATE the effect of identified Misstatements on the ‘Audit‘ and of uncorrected misstatements on the Financial Statements.

ISA 450 (Redrafted) – Introduction

1. Scope of this ISA

It deals with the auditor’s responsibility to evaluate the effect of identified Misstatements on the audit.

2. Effective Date

This ISA is EFFECTIVE for audits of financial statements for periods beginning on or after December 15, 2009.

ISA 450 – Objective

The Objective of the ‘Auditor’ is to EVALUATE:

• The effect of Identified Misstatements on the audit; AND
• The effect of Un-corrected Misstatements, if any, on the Financial Statements.

ISA 450 – Definitions

1. Misstatement

A DIFFERENCE between the Reported Amount, Classification, Presentation or Disclosure of a ‘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.

2. Uncorrected Misstatements

Misstatements that the auditor has accumulated during the audit and have NOT been corrected.

ISA 450 – Requirements

1. Accumulation of Identified Misstatements

The auditor shall ACCUMULATE Misstatements identified during the audit, other than those that are clearly trivial.

2. Consideration of Identified Misstatements as the Audit Progresses

The ‘Auditor’ shall DETERMINE whether the overall ‘AUDIT STRATEGY’ and ‘AUDIT PLAN’ need to be Revised if:

• The nature of identified Misstatements and the existence of other Misstatements could be Material; AND
• The aggregate of Misstatements accumulated during the audit approaches Materiality in accordance with ISA 320.

3. Communication and Correction of Misstatements

The auditor shall COMMUNICATE unless prohibited by law or regulation all Misstatements accumulated during the audit with the appropriate level of Management.

If ‘Management‘ REFUSES, the auditor shall OBTAIN an understanding of management’s reason for not Making the corrections.

4. Evaluating the Effect of Uncorrected Misstatements

Prior to evaluating the effect of uncorrected Misstatements, the auditor shall RE-ASSESS Materiality determined in accordance with ISA 320 to confirm whether it Remains appropriate.

4.1 Communication with Those Charged with Governance

The auditor shall COMMUNICATE uncorrected Misstatements and the effect may have on the opinion in the auditor’s report. The auditor communication shall IDENTIFY Material uncorrected Misstatements individually.

5. Written Representations

The auditor shall REQUEST a ‘Written Representation’ from Management and where appropriate those charged with governance whether they believe the effects of uncorrected Misstatements are Immaterial.

6. Documentation

The ‘Auditor‘ shall INCLUDE in the audit documentation:

• The amount below which Misstatements would be regarded as clearly trivial;
• All Misstatements accumulated during the audit and whether they have been corrected; AND
• The auditor’s conclusion as to whether uncorrected Misstatements are Material and the basis for that conclusion.

Synopsis

ISA 450 ‘Evaluation of Misstatements Identified during the Audit‘ DEALS with the auditor’s responsibility to evaluate the effect of identified Misstatements on the ‘audit‘ and of uncorrected Misstatements on the Financial Statements.

[300-499] Risk Assessment and Response to Assessed Risk 

ISA 300

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ISA 402

Jhanzayb (ACA)

Chartered Accountant – ICAP

Bachelor of Accounting (Honours) – AeU, Malaysia