Detecting Misstatements in Audits: Quantitative Factors & Materiality

During an audit, evaluating the potential for undetected misstatements is crucial. Step 2 of this process involves analyzing quantitative factors to ascertain if the total misstatements identified approach the materiality threshold used throughout the audit.

But which misstatements should be considered in this step?

The answer is D: Corrected and uncorrected misstatements.

Here's why:

• Uncorrected misstatements are those identified during the audit but not adjusted by the client. These directly impact the financial statements' fairness and require careful evaluation.* Corrected misstatements are initially identified but subsequently adjusted by the client. While corrected, they can highlight potential control weaknesses or systematic errors that could lead to other misstatements.

By reviewing both corrected and uncorrected misstatements, auditors can gain a comprehensive understanding of the entity's overall misstatement risk and its potential impact on the audit opinion.