SA-450: Evaluation of Misstatements Identified During the Audit

## SA-450: Evaluation of Misstatements Identified During the Audit

### Step 1: Accumulate Misstatements

• Accumulate all misstatements found during the audit
• Exception: Trivial misstatements (below a pre-determined de minimis threshold) need not be accumulated
• The evaluation is based on the aggregate effect, not just individual items

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### Step 2: Determine Materiality (Per SA-320)

Evaluate each misstatement based on:

• Amount of the misstatement
• Nature of the uncorrected misstatement
• Circumstances of occurrence

Revise the audit plan and strategy accordingly if needed.

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### Step 3: Request Management to Examine

• Auditor requests management to examine the affected Account Balance, Class of transactions, or Disclosure (ACD)
• Purpose: understand the root cause of the misstatement
• If management examines the issue but the misstatement still exists → perform additional audit procedures

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### Step 4: Communicate Misstatements

#### To Management:

#### To TCWG (Required when Modified Opinion is Being Considered):

1. Uncorrected misstatements

2. Effect on the auditor's opinion

3. Request TCWG to correct misstatements related to prior periods (transactions, balances, disclosures, FS as a whole)

> Note: Communication to TCWG is required unless prohibited by law.

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### Step 5: Obtain Written Representation (WR)

• From management AND TCWG
• Content: Effect of uncorrected misstatements is immaterial to the FS
• A summary of uncorrected misstatements must be attached to or included in the WR

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### Documentation

The auditor must document:

1. The amount below which misstatements are considered trivial

2. All misstatements accumulated — whether corrected or not

3. Auditor's conclusion on the materiality of uncorrected misstatements