PSA 450
Uploaded by
AboutPSA 450
Uploaded by
AboutUL-COA/2ND SEM 2024-2025
ACC313-314
UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
PSA 450
EVALUATION OF MISSTATEMENTS IDENTIFIED
DURING THE AUDIT
FOCUS NOTES:
Objective:
• The objective of the auditor is to evaluate:
a. The effect of identified misstatements on the audit; and
b. The effect of uncorrected misstatements, if any, on the financial statements.
Requirements:
• Accumulation of Identified Misstatements
✓ The auditor shall accumulate misstatements identified during the audit, other than those that are clearly
trivial.
• 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:
a. The nature of identified misstatements and the circumstances of their occurrence indicate that other
misstatements may exist that, when aggregated with misstatements accumulated during the audit,
could be material; or
b. The aggregate of misstatements accumulated during the audit approaches materiality determined in
accordance with PSA 320.
✓ If, at the auditor’s request, management has examined a class of transactions, account balance or
disclosure and corrected misstatements that were detected, the auditor shall perform additional audit
procedures to determine whether misstatements remain.
• Communication and Correction of Misstatements
✓ The auditor shall communicate on a timely basis all misstatements accumulated during the audit with
the appropriate level of management, unless prohibited by law or regulation. The auditor shall request
management to correct those misstatements.
✓ If management refuses to correct some or all of the misstatements communicated by the auditor, the
auditor shall obtain an understanding of management’s reasons for not making the corrections and shall
take that understanding into account when evaluating whether the financial statements as a whole are
free from material misstatement.
• Evaluating the Effect of Uncorrected Misstatements
✓ Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality
determined in accordance with PSA 320 to confirm whether it remains appropriate in the context of the
entity’s actual financial results.
✓ The auditor shall determine whether uncorrected misstatements are material, individually or in
aggregate. In making this determination, the auditor shall consider:
a. The size and nature of the misstatements, both in relation to particular classes of transactions,
account balances or disclosures and the financial statements as a whole, and the particular
circumstances of their occurrence; and
b. The effect of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a whole.
• Communication with Those Charged with Governance
✓ The auditor shall communicate with those charged with governance uncorrected misstatements and the
effect that they, individually or in aggregate, may have on the opinion in the auditor’s report, unless
prohibited by law or regulation. The auditor’s communication shall identify material uncorrected
misstatements individually. The auditor shall request that uncorrected misstatements be corrected.
✓ The auditor shall also communicate with those charged with governance the effect of uncorrected
misstatements related to prior periods on the relevant classes of transactions, account balances or
disclosures, and the financial statements as a whole.
• Written Representations
1
UL-COA/2ND SEM 2024-2025
ACC313-314
✓ 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,
individually and in aggregate, to the financial statements as a whole. A summary of such items shall be
included in or attached to the written representation.
• Documentation
✓ The auditor shall include in the audit documentation:
a. The amount below which misstatements would be regarded as clearly trivial;
b. All misstatements accumulated during the audit and whether they have been corrected; and
c. The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in
aggregate, and the basis for that conclusion
