Respondents to ED 540 have been generally supportive of its additional focus on the role of professional scepticism in the audit of accounting estimates and related disclosures and have been sympathetic to the need to finalise the standard quickly given the implementation of IFRS 9 for annual periods commencing on or after 1 January 2018. Some commentators have, however, expressed concerns about the clarity and operability of the proposed standard and have questioned whether its approach is over-complicated in relation to simple accounting estimates. Some have maintained, for example, that more guidance is needed on how to distinguish between ‘low inherent risk’ and ‘non-low inherent risk’ and have asked for greater development ofED 540’s scalability concept through the inclusion of further examples in the application material. Respondents have also commented more generally on a perceived lack of specificity in the audit procedures to be performed and have requested more guidance from the IAASB on how to test valuation models and the internal controls which management have utilised in developing their accounting estimates.At the time of writing, the IAASB is in the process of completing its deliberations in response to the feedback received before finalising its revision of ISA 540 on a timely basis for the audit of financial statements prepared under IFRS 9.Written by a member of the Advanced Audit and Assuranceexamining team5) Evaluation of misstatementsThe completion stage of the audit is when the auditor reviews the work performed and considers the implications for the auditor’s report. A crucial part of this review is the evaluation of misstatements found during the audit. This article describes and discussesthe requirements of ISA 450, Evaluation of Misstatements Identified during the Auditandprovides some examples of the application of the ISA in the context of the Advanced Audit and Assurance exam.ISA 450 – Objectives and definitionsAccording to ISA 450, the objectives of the auditor are to evaluate:The effect of identified misstatements on the audit, andThe effect of uncorrected misstatements, if any, on the financial statementsA misstatement occurs when something has not been treated correctly in the financial statements, meaning that the applicable financial reporting framework, namely IFRS, has not been properly applied. Examples of misstatement, which can arise due to error or fraud, could include:17
AAA Technical ArticlesAn incorrect amount has been recognised – for example, an asset is not valued in accordance with the relevant IFRS requirement.An item is classified incorrectly – for example, finance cost is included within cost of sales in the statement of profit or loss.