Final answer:
Auditors resolve significant differences between expected and reported book values through quantification, measurement of the discrepancy; corroboration, gathering evidence to support the reasonability of the difference; and evaluation, assessing the implications and materiality of the discrepancy.
Step-by-step explanation:
When auditors find significant differences between their expectation of a financial statement item and the entity’s reported figure, they must resolve these discrepancies. The process involves three key steps: quantification, corroboration, and evaluation.
Quantification is the measurement of the difference. Auditors need to determine the exact amount by which the entity’s book value differs from their expectations. This helps in assessing the magnitude of the difference and its potential impact on the financial statements.
Corroboration involves collecting evidence to support the reasonability of the difference. An auditor may gather third-party confirmations or other records to verify that the difference is not an error or an indication of fraud.
Evaluation is an assessment of the implications of the identified difference. The auditor must judge whether the difference is material and if it affects the understanding of the entity's financial position and performance. This evaluation will inform the auditor's opinion on the financial statements.