Question

If financial statements are materially misstated, auditor should______

Answer 1

When an auditor identifies materially misstated financial statements, they must determine the cause, assess materiality, propose corrections, and potentially modify the audit report. Intentional misstatements or fraud require notifying management and possibly regulatory bodies, while unintentional errors need to be corrected or reported in the auditor's findings.

Step-by-step explanation:

If financial statements are materially misstated, an auditor should investigate the cause of the misstatement, assess the materiality of the error, and determine the necessary steps to rectify the situation. The goal is to ensure that the financial statements present a true and fair view of the company's financial performance and position. If the misstatement is intentional or due to fraud, the auditor has a responsibility to bring these concerns to the attention of management and, if necessary, to those charged with governance, and if appropriate, consider reporting to regulatory bodies. If the misstatements are unintentional, the auditor should propose adjustments and, if not corrected, may need to modify their audit report.

An audit report may be issued with a qualifier or may be an adverse opinion if the financial statements are believed to be materially misstated and if the misstatements are not corrected. When an auditor encounters such a situation, they have to adhere to the specific auditing standards and ethical requirements guiding their profession, which typically include appropriate disclosure and reporting of the misstatement.

Answer 2

If financial statements are materially misstated, an auditor should determine the misstatement's nature, assess the need for a restatement, and contemplate the impact on their audit report, while considering whether there's fraud involved.

Step-by-step explanation:

If financial statements are materially misstated, an auditor should determine the nature of the misstatement, assess whether a restatement is necessary, and consider the implications for their audit report. Auditors play a critical role in ensuring the accuracy and reliability of financial information.

They must thoroughly investigate any indications of material misstatements, which can arise from errors, fraudulent financial reporting, or omissions, and make recommendations based on their findings. If the misstatements are unintentional, auditors will typically propose adjustments to correct the financial records.

However, if the misstatements are the result of fraud, the auditor must take additional steps, such as informing management and, in some cases, the audit committee or regulators, depending on the severity and the applicable legal framework.