When evaluating the audit findings, the auditor should be satisfied that the
A) amount of known misstatement is documented in the management representation letter.
B) estimate of the total known and likely misstatements is less than a material amount.
C) estimate of the total likely misstatement includes sample error.
D) amount of known misstatement is acknowledged and recorded by the client.

Question

Quizplus · Accepted Answer

The auditor should ensure that the estimate of total known and likely misstatements is less than a material amount. This provides reasonable assurance that the financial statements are not materially misstated. Option A is incorrect because management representation letters do not document the amount of known misstatements but rather provide written statements regarding the completeness and accuracy of information provided by management. Option C is incorrect because the estimate of total likely misstatement should not include sample error as this will inflate the estimate. Option D is incorrect as the amount of known misstatement being acknowledged and recorded by the client does not provide sufficient assurance that the financial statements are free from material misstatements.

When Evaluating the Audit Findings, the Auditor Should Be Satisfied