Auditors Responsibility to Detect and Communicate Misstatements

1
Auditors Responsibility to Detect and
Communicate Misstatements

• CICA Handbook, S5135

2
Misstatements

• Arise from error, or fraud, or other
  irregularities
• Errors are unintentional and include omissions
• Fraud and other irregularities are intentional
  and include omissions and theft of assets

3
Professional Scepticism

• Take engagements only where there is assurance of
  the good faith of management
• Be alert for factors which increase the risk of
  material misstatement
• Be alert for suspicious circumstances
• Contradictory evidence

4
Detection of Misstatements

• Assess inherent and control risk
• If risk is high, the auditor may
• Perform audit procedures that provide more
  reliable evidence (qualitative)
• Expand the extent of testing (quantitative)
• Test closer to balance sheet date (timing)
• Use more experienced staff, supervise closely

5
If Auditor Suspects Misstatement

• Perform procedures to confirm or dispel that
  suspician
• If auditor confirms or is unable to dispel then
  should reconsider evidence previously obtained
• Consider the possibility of collusion or
  management involvement

6
Auditors Responsibility

• Adhere to GAAS
• Design procedures to reduce the risk of not
  detecting a material misstatement to an
  appropriate low level
• Audit does not guarantee that all material
  misstatements will be detected
• (use of judgement, use of testing, inherent
  limitations of I/C, evidence often persuasive not
  conclusive)

7
Communication of Misstatements

• Confirmed misstatements (other than trivial
  errors) - to management
• Significant misstatements (adjusted or not) - to
  the audit committee
• E.g., material mistatements, fraud, those that
  indicate significant weaknesses in I/C,
  misstatements that may cause future financial
  statements to be misstated

8
Whistle Blowing

• Communication to third parties precluded by
  confidentiality requirement unless there is a
  statutory duty imposed on the auditor
• If in doubt - obtain legal advice