Final answer:
In cases of material misstatements not addressed by management, an auditor should request their elimination, discuss with management, attempt to obtain evidence of fraud, potentially modify their audit opinion, and consider withdrawing from the engagement.
Step-by-step explanation:
If an auditor identifies material misstatements that management fails to address, the auditor should take a series of escalating steps. Initially, the auditor should request management to eliminate the material misstatement. If this is unsuccessful, the auditor needs to discuss the matter with immediate management and those charged with governance to inform them of the implications of the uncorrected misstatements.
If the misstatement indicates a possibility of material fraud, the auditor must attempt to obtain additional audit evidence to determine whether fraud has occurred. If management still does not take appropriate action and the misstatement remains uncorrected, the auditor may consider modifying their audit opinion, and if the misstatement is sufficiently serious, they may ultimately decide to withdraw from the engagement, after considering the legal and professional implications of such action.