ACCA Advanced Audit and Assurance (AAA) Practice Exam

Under ISA 450, how should auditors treat misstatements identified during an audit?

1. Only trivial misstatements should be considered

2. All misstatements should be reported to management

3. Auditors should accumulate all non-trivial misstatements

4. Misstatements should be ignored if they are not material

The correct answer is: Auditors should accumulate all non-trivial misstatements

Under ISA 450, the treatment of misstatements identified during an audit is significant for ensuring the integrity of financial reporting. The correct answer highlights the auditor's responsibility to accumulate all non-trivial misstatements. This is important for a few reasons. Firstly, accumulating non-trivial misstatements allows auditors to assess and understand the overall impact of errors on financial statements. By documenting these misstatements, auditors can evaluate whether the cumulative effect of the misstatements might be material to the financial statements as a whole. This accumulation is critical for forming an opinion on the audit and ensuring that any necessary corrections are made prior to the issuance of the financial statements. Furthermore, by focusing on non-trivial misstatements, auditors can prioritize significant errors that may indicate broader issues with internal controls or financial reporting processes, rather than being sidetracked by minutiae. This aligns with the audit's goal of providing a fair representation of financial health and compliance with applicable standards. The treatment of trivial misstatements does not warrant the same level of attention as non-trivial ones, as they are unlikely to influence the decisions of the users of the financial statements significantly. Therefore, the emphasis is placed on non-trivial misstatements to ensure that the audit