Material misstatements discovered during the audit _______.
A)are a basis for the auditor to immediately issue a scope limitation
B)are discussed with the client's legal counsel only, and usually they make the recommended adjustment to correct the misstatement
C)are discussed with management, and usually management makes the recommended adjustment to correct the misstatement
D)require a note disclosure in the financial statements

Question

Quizplus · Accepted Answer

Material misstatements discovered during the audit are discussed with management, and usually management makes the recommended adjustment to correct the misstatement. It is management's responsibility to prepare the financial statements, and the auditor's role is to provide reasonable assurance that the financial statements are free from material misstatements. Therefore, if the auditor discovers a material misstatement, they should discuss it with management so that they can make the necessary adjustments. If management refuses to make the adjustment, the auditor should consider issuing a qualified or adverse opinion on the financial statements. However, this should only be done after considering the significance of the misstatement and whether it affects the fairness of the financial statements as a whole. A scope limitation is not necessary unless the auditor is unable to obtain sufficient appropriate audit evidence to support their opinion. Note disclosures may also be necessary but only if the misstatement is material and cannot be corrected by management.

Material Misstatements Discovered During the Audit _______