As we finalise the audit of our clients’ financial statements, we will be communicating any misstatements the teams identify.
This blog post gives our audit clients some information about how we record material misstatements.
We collect a record of misstatements of financial statements in our summary of misstatements. We sometimes refer to this to as our scoresheet. The summary includes both adjusted and unadjusted misstatements.
Our auditing standards require us to record all misstatements, other than those that are clearly trivial. We have communicated the level that we will record misstatements via your client strategy. We collect all misstatements to ensure that collectively these do not materially affect your financial statements.
Misstatements include errors in calculations, values and disclosures. They also include missing and inadequate disclosures. We audit the financial report as a whole, so we include current and prior year information in our assessment. We may need to estimate the value of misstatements and apply our judgement. Where we do so, we will discuss our calculations with you.
What we will ask of our clients’ finance teams
We will discuss with your finance team all misstatements that we identify. And we will ask that you adjust all material errors and misstatements in your financial statements. If you do not adjust material misstatements, our audit opinion may be affected.
The immaterial errors and misstatements we identify may indicate that your quality control mechanisms are not working. We communicate any errors and misstatements with your finance team so they can change processes where required. QAO will not ask finance teams to make immaterial changes to financial statements. Making immaterial adjustments may impact on the overall timeliness and cost of the financial statement process and increase the risk of preparation errors.
What we will require from those charged with governance
We require confirmation that the responsible officers signing the financial statements and the audit committee consider the unadjusted misstatements we identify to be immaterial. We include all unadjusted misstatements as an attachment to the representation letter that we ask responsible officers to sign. We also provide the unadjusted misstatements to the audit committee for their consideration when recommending the financial statements for certification.
We usually also communicate material misstatements that have been adjusted by management with those charged with governance. We do this to help ensure that quality control mechanisms are established in response to the identified errors and misstatements.
Please do not hesitate to contact QAO’s engagement leaders for further discussion.