{"id":"F2009L04083","name":"ASA 450 - Evaluation of Misstatements Identified during the Audit - October 2009","slug":"asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":81644,"registerId":"commonwealth-F2009L04083-current","compilationNumber":null,"startDate":"2026-04-02","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"Obtaining a Copy of this Auditing Standa","sectionType":"section","heading":"Obtaining a Copy of this Auditing Standard","content":"##### Obtaining a Copy of this Auditing Standard\n\nThe most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au","sortOrder":0},{"sectionNumber":"Contact Details","sectionType":"section","heading":"Contact Details","content":"##### Contact Details\n\n| Auditing and Assurance Standards BoardPodium LevelLevel 14, 530 Collins StreetMelbourne Victoria 3000AUSTRALIA | Phone: (03) 8080 7400E‑mail: enquiries@auasb.gov.auPostal Address:PO Box 204Collins Street WestMelbourne Victoria 8007AUSTRALIA |\n| -------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- |","sortOrder":1},{"sectionNumber":"COPYRIGHT","sectionType":"section","heading":"COPYRIGHT","content":"##### COPYRIGHT\n\n© 2017 Commonwealth of Australia. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use subject to the inclusion of an acknowledgment of the source as being the Australian Auditing and Assurance Standards Board (AUASB).\n\nRequests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to the Executive Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Otherwise, no part of this Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.\n\nThis Auditing Standard reproduces substantial parts of the corresponding International Standard on Auditing issued by the International Auditing and Assurance Standards Board (IAASB) and published by the International Federation of Accountants (IFAC), in the manner described in the statement on Conformity with International Standards on Auditing. The AUASB acknowledges that IFAC is the owner of copyright in the International Standard on Auditing incorporated in this Auditing Standard throughout the world.\n\nAll existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use only.\n\nFurther information and requests for authorisation to reproduce this Auditing Standard for commercial purposes outside Australia should be addressed to the Executive Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Any decision to approve a request may also require the agreement of IFAC.\n\nISSN 1833‑4393","sortOrder":2},{"sectionNumber":"CONTENTS","sectionType":"part","heading":"CONTENTS","content":"# CONTENTS\n\nCOMPILATION DETAILS\n\nAUTHORITY STATEMENT\n\nCONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING\n\nParagraphs\n\nApplication......................................................Aus 0.1-Aus 0.2\n\nOperative Date.........................................................Aus 0.3\n\nIntroduction\n\nScope of this Auditing Standard..................................................1\n\nEffective Date...............................................................2\n\nObjective..................................................................3\n\nDefinitions.................................................................4\n\nRequirements\n\nAccumulation of Identified Misstatements...........................................5\n\nConsideration of Identified Misstatements as the Audit Progresses........................6-7\n\nCommunication and Correction of Misstatements....................................8-9\n\nEvaluating the Effect of Uncorrected Misstatements.................................10-13\n\nWritten Representation........................................................14\n\nDocumentation..............................................................15\n\nApplication and Other Explanatory Material\n\nDefinition of Misstatement.....................................................A1\n\nAccumulation of Identified Misstatements..........................................A2\n\nMisstatements in Individual Statements............................................A3\n\nMisstatements in Disclosures...................................................A4\n\nAccumulation of Misstatements..............................................A5-A6\n\nConsideration of Identified Misstatements as the Audit Progresses.....................A7-A9\n\nCommunication and Correction of Misstatements................................A10-A13\n\nEvaluating the Effect of Uncorrected Misstatements..............................A14-A28\n\nWritten Representation.......................................................A29\n\nDocumentation............................................................A30","sortOrder":3},{"sectionNumber":"COMPILATION DETAILS","sectionType":"part","heading":"COMPILATION DETAILS","content":"##### Obtaining a Copy of this Auditing Standard\n\nThe most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au\n\n##### Contact Details\n\n| Auditing and Assurance Standards BoardPodium LevelLevel 14, 530 Collins StreetMelbourne Victoria 3000AUSTRALIA | Phone: (03) 8080 7400E‑mail: enquiries@auasb.gov.auPostal Address:PO Box 204Collins Street WestMelbourne Victoria 8007AUSTRALIA |\n| -------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- |\n\n##### COPYRIGHT\n\n© 2017 Commonwealth of Australia. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use subject to the inclusion of an acknowledgment of the source as being the Australian Auditing and Assurance Standards Board (AUASB).\n\nRequests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to the Executive Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Otherwise, no part of this Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.\n\nThis Auditing Standard reproduces substantial parts of the corresponding International Standard on Auditing issued by the International Auditing and Assurance Standards Board (IAASB) and published by the International Federation of Accountants (IFAC), in the manner described in the statement on Conformity with International Standards on Auditing. The AUASB acknowledges that IFAC is the owner of copyright in the International Standard on Auditing incorporated in this Auditing Standard throughout the world.\n\nAll existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use only.\n\nFurther information and requests for authorisation to reproduce this Auditing Standard for commercial purposes outside Australia should be addressed to the Executive Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Any decision to approve a request may also require the agreement of IFAC.\n\nISSN 1833‑4393\n\n# CONTENTS\n\nCOMPILATION DETAILS\n\nAUTHORITY STATEMENT\n\nCONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING\n\nParagraphs\n\nApplication......................................................Aus 0.1-Aus 0.2\n\nOperative Date.........................................................Aus 0.3\n\nIntroduction\n\nScope of this Auditing Standard..................................................1\n\nEffective Date...............................................................2\n\nObjective..................................................................3\n\nDefinitions.................................................................4\n\nRequirements\n\nAccumulation of Identified Misstatements...........................................5\n\nConsideration of Identified Misstatements as the Audit Progresses........................6-7\n\nCommunication and Correction of Misstatements....................................8-9\n\nEvaluating the Effect of Uncorrected Misstatements.................................10-13\n\nWritten Representation........................................................14\n\nDocumentation..............................................................15\n\nApplication and Other Explanatory Material\n\nDefinition of Misstatement.....................................................A1\n\nAccumulation of Identified Misstatements..........................................A2\n\nMisstatements in Individual Statements............................................A3\n\nMisstatements in Disclosures...................................................A4\n\nAccumulation of Misstatements..............................................A5-A6\n\nConsideration of Identified Misstatements as the Audit Progresses.....................A7-A9\n\nCommunication and Correction of Misstatements................................A10-A13\n\nEvaluating the Effect of Uncorrected Misstatements..............................A14-A28\n\nWritten Representation.......................................................A29\n\nDocumentation............................................................A30\n\n  \n\n# COMPILATION DETAILS\n\n### Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit (as Amended)\n\nThis compilation takes into account amendments made up to and including 30 May 2017 and was prepared on 30 May 2017 by the Auditing and Assurance Standards Board (AUASB).\n\nThis compilation is not a separate Auditing Standard made by the AUASB. Instead, it is a representation of ASA 450 (October 2009) as amended by another Auditing Standard which is listed in the Table below.\n\n##### Table of Standards\n\n| Standard       | Date made       | Operative Date                                                    |\n| -------------- | --------------- | ----------------------------------------------------------------- |\n| ASA 450 [A]    | 27 October 2009 | financial reporting periods commencing on or after 1 January 2010 |\n| ASA 2015‑1 [B] | 1 December 2015 | financial reporting periods ending on or after 15 December 2016   |\n| ASA 2017‑2 [C] | 30 May 2017     | financial reporting periods commencing on or after 1 January 2018 |\n\n\\[A\\] Federal Register of Legislative Instruments – registration number F2009L04083, 11 November 2009\n\n\\[B\\] Federal Register of Legislative Instruments – registration number F2015L02032, 16 December 2015\n\n\\[C\\] Federal Register of Legislative Instruments – registration number F2017L01179TBD, TBD13 September 2017\n\n##### Table of Amendments\n\n| Paragraph affected                        | How affected | By … [paragraph]         |\n| ----------------------------------------- | ------------ | ------------------------ |\n| Aus A1.1                                  | Deleted      | ASA 2015‑1 [143]         |\n| Footnote * attached to paragraph Aus A1.1 | Deleted      | ASA 2015‑1 [144]         |\n| Paragraph A21                             | Amended      | ASA 2015‑1 [145]         |\n| Footnote 16                               | Amended      | ASA 2015‑1 [146]         |\n| Paragraph 4                               | Amended      | ASA 2015-1 [120]         |\n| Paragraph A1                              | Amended      | ASA 2015-1 [121]         |\n| Footnotes 6 and 7                         | Addition     | ASA 2015-1 [122]         |\n| Paragraph A2                              | Amended      | ASA 2015-1 [123]         |\n| Heading above paragraph A3                | Addition     | ASA 2015-1 [124]         |\n| A3                                        | Addition     | ASA 2015-1 [125-126]     |\n| Heading above paragraph A4                | Addition     | ASA 2015-1 [127]         |\n| A4                                        | Addition     | ASA 2015-1 [128-129]     |\n| Heading above paragraph A5                | Addition     | ASA 2015-1 [130]         |\n| A5                                        | Addition     | ASA 2015-1 [131-132]     |\n| A6                                        | Amendment    | ASA 2015-1 [133]         |\n| A10                                       | Amendment    | ASA 2015-1 [134]         |\n| A16                                       | Amendment    | ASA 2015-1 [135]         |\n| A17                                       | Addition     | ASA 2015-1 [136-137]     |\n| A18                                       | Addition     | ASA 2015-1 [138 and 140] |\n| Footnote 13                               | Addition     | ASA 2015-1 [139]         |\n| A20                                       | Amendment    | ASA 2015-1 [141]         |\n| Footnote 15                               | Addition     | ASA 2015-1 [142]         |\n| 8                                         | Amendment    | ASA 2017-2 [44]          |\n| 9                                         | Amendment    | ASA 2017-2 [45]          |\n| 10                                        | Amendment    | ASA 2017-2 [46]          |\n| 11                                        | Amendment    | ASA 2017-2 [47]          |\n| 12                                        | Amendment    | ASA 2017-2 [48]          |\n| 14                                        | Amendment    | ASA 2017-2 [49]          |\n| 15                                        | Amendment    | ASA 2017-2 [50]          |\n| A11                                       | Amendment    | ASA 2017-2 [51]          |\n| A20                                       | Amendment    | ASA 2017-2 [52]          |\n| A22                                       | Amendment    | ASA 2017-2 [53]          |\n\n  \n\n## AUTHORITY STATEMENT\n\nAuditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit (as amended to 30 May 2017) is set out in paragraphs Aus 0.1 to A30.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to Australian Auditing Standards, which sets out the intentions of the AUASB on how the Australian Auditing Standards, operative for financial reporting periods commencing on or after 1 January 2010, are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.\n\nDated: 30 May 2017\n\n##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with International Standard on Auditing ISA 450 Evaluation of Misstatements Identified during the Audit issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nThe equivalent requirements and related application and other explanatory material included in ISA 450 in respect of “relevant ethical requirements”, have been included in Auditing Standard, ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements. There is no international equivalent to ASA 102.\n\nCompliance with this Auditing Standard enables compliance with ISA 450.","sortOrder":4},{"sectionNumber":"Auditing Standard ASA 450 Evaluation of ","sectionType":"division","heading":"Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit (as Amended)","content":"### Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit (as Amended)\n\nThis compilation takes into account amendments made up to and including 30 May 2017 and was prepared on 30 May 2017 by the Auditing and Assurance Standards Board (AUASB).\n\nThis compilation is not a separate Auditing Standard made by the AUASB. Instead, it is a representation of ASA 450 (October 2009) as amended by another Auditing Standard which is listed in the Table below.","sortOrder":5},{"sectionNumber":"Table of Standards","sectionType":"section","heading":"Table of Standards","content":"##### Table of Standards\n\n| Standard       | Date made       | Operative Date                                                    |\n| -------------- | --------------- | ----------------------------------------------------------------- |\n| ASA 450 [A]    | 27 October 2009 | financial reporting periods commencing on or after 1 January 2010 |\n| ASA 2015‑1 [B] | 1 December 2015 | financial reporting periods ending on or after 15 December 2016   |\n| ASA 2017‑2 [C] | 30 May 2017     | financial reporting periods commencing on or after 1 January 2018 |\n\n\\[A\\] Federal Register of Legislative Instruments – registration number F2009L04083, 11 November 2009\n\n\\[B\\] Federal Register of Legislative Instruments – registration number F2015L02032, 16 December 2015\n\n\\[C\\] Federal Register of Legislative Instruments – registration number F2017L01179TBD, TBD13 September 2017","sortOrder":6},{"sectionNumber":"Table of Amendments","sectionType":"section","heading":"Table of Amendments","content":"##### Table of Amendments\n\n| Paragraph affected                        | How affected | By … [paragraph]         |\n| ----------------------------------------- | ------------ | ------------------------ |\n| Aus A1.1                                  | Deleted      | ASA 2015‑1 [143]         |\n| Footnote * attached to paragraph Aus A1.1 | Deleted      | ASA 2015‑1 [144]         |\n| Paragraph A21                             | Amended      | ASA 2015‑1 [145]         |\n| Footnote 16                               | Amended      | ASA 2015‑1 [146]         |\n| Paragraph 4                               | Amended      | ASA 2015-1 [120]         |\n| Paragraph A1                              | Amended      | ASA 2015-1 [121]         |\n| Footnotes 6 and 7                         | Addition     | ASA 2015-1 [122]         |\n| Paragraph A2                              | Amended      | ASA 2015-1 [123]         |\n| Heading above paragraph A3                | Addition     | ASA 2015-1 [124]         |\n| A3                                        | Addition     | ASA 2015-1 [125-126]     |\n| Heading above paragraph A4                | Addition     | ASA 2015-1 [127]         |\n| A4                                        | Addition     | ASA 2015-1 [128-129]     |\n| Heading above paragraph A5                | Addition     | ASA 2015-1 [130]         |\n| A5                                        | Addition     | ASA 2015-1 [131-132]     |\n| A6                                        | Amendment    | ASA 2015-1 [133]         |\n| A10                                       | Amendment    | ASA 2015-1 [134]         |\n| A16                                       | Amendment    | ASA 2015-1 [135]         |\n| A17                                       | Addition     | ASA 2015-1 [136-137]     |\n| A18                                       | Addition     | ASA 2015-1 [138 and 140] |\n| Footnote 13                               | Addition     | ASA 2015-1 [139]         |\n| A20                                       | Amendment    | ASA 2015-1 [141]         |\n| Footnote 15                               | Addition     | ASA 2015-1 [142]         |\n| 8                                         | Amendment    | ASA 2017-2 [44]          |\n| 9                                         | Amendment    | ASA 2017-2 [45]          |\n| 10                                        | Amendment    | ASA 2017-2 [46]          |\n| 11                                        | Amendment    | ASA 2017-2 [47]          |\n| 12                                        | Amendment    | ASA 2017-2 [48]          |\n| 14                                        | Amendment    | ASA 2017-2 [49]          |\n| 15                                        | Amendment    | ASA 2017-2 [50]          |\n| A11                                       | Amendment    | ASA 2017-2 [51]          |\n| A20                                       | Amendment    | ASA 2017-2 [52]          |\n| A22                                       | Amendment    | ASA 2017-2 [53]          |\n\n  \n\n## AUTHORITY STATEMENT\n\nAuditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit (as amended to 30 May 2017) is set out in paragraphs Aus 0.1 to A30.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to Australian Auditing Standards, which sets out the intentions of the AUASB on how the Australian Auditing Standards, operative for financial reporting periods commencing on or after 1 January 2010, are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.\n\nDated: 30 May 2017\n\n##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with International Standard on Auditing ISA 450 Evaluation of Misstatements Identified during the Audit issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nThe equivalent requirements and related application and other explanatory material included in ISA 450 in respect of “relevant ethical requirements”, have been included in Auditing Standard, ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements. There is no international equivalent to ASA 102.\n\nCompliance with this Auditing Standard enables compliance with ISA 450.","sortOrder":7},{"sectionNumber":"AUTHORITY STATEMENT","sectionType":"part","heading":"AUTHORITY STATEMENT","content":"## AUTHORITY STATEMENT\n\nAuditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit (as amended to 30 May 2017) is set out in paragraphs Aus 0.1 to A30.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to Australian Auditing Standards, which sets out the intentions of the AUASB on how the Australian Auditing Standards, operative for financial reporting periods commencing on or after 1 January 2010, are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.","sortOrder":8},{"sectionNumber":"Conformity with International Standards ","sectionType":"section","heading":"Conformity with International Standards on Auditing","content":"##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with International Standard on Auditing ISA 450 Evaluation of Misstatements Identified during the Audit issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nThe equivalent requirements and related application and other explanatory material included in ISA 450 in respect of “relevant ethical requirements”, have been included in Auditing Standard, ASA 102 Compliance with Ethical Requirements when Performing Audits, Reviews and Other Assurance Engagements. There is no international equivalent to ASA 102.\n\nCompliance with this Auditing Standard enables compliance with ISA 450.","sortOrder":9},{"sectionNumber":"Auditing Standard ASA 450","sectionType":"part","heading":"Auditing Standard ASA 450","content":"Auditing Standard ASA 450\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 450 incorporates subsequent amendments contained in another Auditing Standard made by the AUASB up to and including 30 May 2017 (see Compilation Details).\n\n## Auditing Standard ASA 450\n\n### Evaluation of Misstatements Identified during the Audit\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report. ASA 700 deals with the auditor’s responsibility, in forming an opinion on the financial report, to conclude whether reasonable assurance has been obtained about whether the financial report as a whole is free from material misstatement. The auditor’s conclusion required by ASA 700 takes into account the auditor’s evaluation of uncorrected misstatements, if any, on the financial report, in accordance with this Auditing Standard.[\\[1\\]](#_ftn1) ASA 320[\\[2\\]](#_ftn2) deals with the auditor’s responsibility to apply the concept of materiality appropriately in planning and performing an audit of a financial report.\n\n###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]","sortOrder":10},{"sectionNumber":"Evaluation of Misstatements Identified d","sectionType":"division","heading":"Evaluation of Misstatements Identified during the Audit","content":"Auditing Standard ASA 450\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 450 incorporates subsequent amendments contained in another Auditing Standard made by the AUASB up to and including 30 May 2017 (see Compilation Details).\n\n## Auditing Standard ASA 450\n\n### Evaluation of Misstatements Identified during the Audit\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report. ASA 700 deals with the auditor’s responsibility, in forming an opinion on the financial report, to conclude whether reasonable assurance has been obtained about whether the financial report as a whole is free from material misstatement. The auditor’s conclusion required by ASA 700 takes into account the auditor’s evaluation of uncorrected misstatements, if any, on the financial report, in accordance with this Auditing Standard.[\\[1\\]](#_ftn1) ASA 320[\\[2\\]](#_ftn2) deals with the auditor’s responsibility to apply the concept of materiality appropriately in planning and performing an audit of a financial report.\n\n###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]","sortOrder":11},{"sectionNumber":"Application","sectionType":"section","heading":"Application","content":"##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.","sortOrder":12},{"sectionNumber":"Operative Date","sectionType":"section","heading":"Operative Date","content":"##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]","sortOrder":13},{"sectionNumber":"Introduction","sectionType":"section","heading":"Introduction","content":"Auditing Standard ASA 450\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 450 incorporates subsequent amendments contained in another Auditing Standard made by the AUASB up to and including 30 May 2017 (see Compilation Details).\n\n## Auditing Standard ASA 450\n\n### Evaluation of Misstatements Identified during the Audit\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report. ASA 700 deals with the auditor’s responsibility, in forming an opinion on the financial report, to conclude whether reasonable assurance has been obtained about whether the financial report as a whole is free from material misstatement. The auditor’s conclusion required by ASA 700 takes into account the auditor’s evaluation of uncorrected misstatements, if any, on the financial report, in accordance with this Auditing Standard.[\\[1\\]](#_ftn1) ASA 320[\\[2\\]](#_ftn2) deals with the auditor’s responsibility to apply the concept of materiality appropriately in planning and performing an audit of a financial report.\n\n###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]","sortOrder":14},{"sectionNumber":"Scope of this Auditing Standard","sectionType":"section","heading":"Scope of this Auditing Standard","content":"###### Scope of this Auditing Standard\n\n1.  This Auditing Standard deals with the auditor’s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial report. ASA 700 deals with the auditor’s responsibility, in forming an opinion on the financial report, to conclude whether reasonable assurance has been obtained about whether the financial report as a whole is free from material misstatement. The auditor’s conclusion required by ASA 700 takes into account the auditor’s evaluation of uncorrected misstatements, if any, on the financial report, in accordance with this Auditing Standard.[\\[1\\]](#_ftn1) ASA 320[\\[2\\]](#_ftn2) deals with the auditor’s responsibility to apply the concept of materiality appropriately in planning and performing an audit of a financial report.","sortOrder":15},{"sectionNumber":"Effective Date","sectionType":"section","heading":"Effective Date","content":"###### Effective Date\n\n1.  \\[Deleted by the AUASB. Refer Aus 0.3\\]","sortOrder":16},{"sectionNumber":"Objective","sectionType":"section","heading":"Objective","content":"##### Objective\n\n1.  The objective of the auditor is to evaluate:\n    1.  The effect of identified misstatements on the audit; and\n    2.  The effect of uncorrected misstatements, if any, on the financial report.","sortOrder":17},{"sectionNumber":"Definitions","sectionType":"section","heading":"Definitions","content":"##### Definitions\n\n1.  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:\n    1.  Misstatement means a difference between the reported amount, classification, presentation, or disclosure of a financial report item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. (Ref: Para. A1)\n\nWhen the auditor expresses an opinion on whether the financial report is presented fairly, in all material respects, or gives a true and fair view, misstatements also include those adjustments of amounts, classifications, presentation, or disclosures that, in the auditor’s judgement, are necessary for the financial report to be presented fairly, in all material respects, or to give a true and fair view.\n\n1.  Uncorrected misstatements means misstatements that the auditor has accumulated during the audit and that have not been corrected.","sortOrder":18},{"sectionNumber":"Requirements","sectionType":"section","heading":"Requirements","content":"##### Objective\n\n1.  The objective of the auditor is to evaluate:\n    1.  The effect of identified misstatements on the audit; and\n    2.  The effect of uncorrected misstatements, if any, on the financial report.\n\n##### Definitions\n\n1.  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:\n    1.  Misstatement means a difference between the reported amount, classification, presentation, or disclosure of a financial report item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. (Ref: Para. A1)\n\nWhen the auditor expresses an opinion on whether the financial report is presented fairly, in all material respects, or gives a true and fair view, misstatements also include those adjustments of amounts, classifications, presentation, or disclosures that, in the auditor’s judgement, are necessary for the financial report to be presented fairly, in all material respects, or to give a true and fair view.\n\n1.  Uncorrected misstatements means misstatements that the auditor has accumulated during the audit and that have not been corrected.\n\n##### Requirements\n\n###### Accumulation of Identified Misstatements\n\n1.  The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial. (Ref: Para. A2‑A6)\n\n###### Consideration of Identified Misstatements as the Audit Progresses\n\n1.  The auditor shall determine whether the overall audit strategy and audit plan need to be revised if:\n    1.  The nature of identified misstatements and the circumstances of their occurrence indicate that other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material; or (Ref: Para. A7)\n    2.  The aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ASA 320\\. (Ref: Para. A8)\n2.  If, at the auditor’s request, management has examined a class of transactions, account balances or disclosures and corrected misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain. (Ref: Para. A9)\n\n###### Communication and Correction of Misstatements\n\n1.  The auditor shall communicate, unless prohibited by law or regulation, on a timely basis all misstatements accumulated during the audit with the appropriate level of management.[\\[3\\]](#_ftn3) The auditor shall request management to correct those misstatements. (Ref: Para. A10‑A12)\n2.  If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an understanding of management’s reasons for not making the corrections and shall take that understanding into account when evaluating whether the financial report as a whole is free from material misstatement. (Ref: Para. A13)\n\n###### Evaluating the Effect of Uncorrected Misstatements\n\n1.  Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality determined in accordance with ASA 320 to confirm whether it remains appropriate in the context of the entity’s actual financial results. (Ref: Para. A14‑A15)\n2.  The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, the auditor shall consider:\n    1.  The size and nature of the misstatements, both in relation to particular classes of transactions, account balances or disclosures and the financial report as a whole, and the particular circumstances of their occurrence; and (Ref: Para. A16‑A22, A24‑A25)\n    2.  The effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial report as a whole. (Ref: Para. A23)\n\nCommunication with Those Charged with Governance\n\n1.  The auditor shall communicate with those charged with governance uncorrected misstatements and the effect that they, individually or in aggregate, may have on the opinion in the auditor’s report, unless prohibited by law or regulation.[\\[4\\]](#_ftn4) The auditor’s communication shall identify material uncorrected misstatements individually. The auditor shall request that uncorrected misstatements be corrected. (Ref: Para. A26‑A28)\n2.  The auditor shall also communicate with those charged with governance the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial report as a whole.\n\n###### Written Representation\n\n1.  The auditor shall request a written representation from management and, where appropriate, those charged with governance whether they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial report as a whole. A summary of such items shall be included in or attached to the written representation. (Ref: Para. A29)\n\n###### Documentation\n\n1.  The auditor shall include in the audit documentation:[\\[5\\]](#_ftn5) (Ref: Para. A30)\n    1.  The amount below which misstatements would be regarded as clearly trivial (see paragraph 5 of this Auditing Standard);\n    2.  All misstatements accumulated during the audit and whether they have been corrected (see paragraphs 5, 8 and 12 of this Auditing Standard); and\n    3.  The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in aggregate, and the basis for that conclusion (see paragraph 11 of this Auditing Standard).\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Definition of Misstatement (Ref: Para. 4(a))\n\n1.  Misstatements may result from:\n    1.  An inaccuracy in gathering or processing data from which the financial report is prepared;\n    2.  An omission of an amount or disclosure, including inadequate or incomplete disclosures, and those disclosures required to meet disclosure objectives of certain financial reporting frameworks as applicable[\\[6\\]](#_ftn6);\n    3.  An incorrect accounting estimate arising from overlooking, or clear misinterpretation of, facts;\n    4.  Judgements of management concerning accounting estimates that the auditor considers unreasonable or the selection and application of accounting policies that the auditor considers inappropriate.\n    5.  An inappropriate classification, aggregation or disaggregation, of information; and\n    6.  For a financial report prepared in accordance with a fair presentation framework, the omission of a disclosure necessary for the financial report to achieve fair presentation beyond disclosures specifically required by the framework.[\\[7\\]](#_ftn7)\n\nExamples of misstatements arising from fraud are provided in ASA 240.[\\[8\\]](#_ftn8)\n\n###### Accumulation of Identified Misstatements (Ref: Para. 5)\n\n1.  Paragraph 5 of this Auditing Standard requires the auditor to accumulate misstatements identified during the audit other than those that are clearly trivial. “Clearly trivial” is not another expression for “not material.” Misstatements that are clearly trivial will be of a wholly different (smaller) order of magnitude, or of a wholly different nature than those that would be determined to be material, and will be matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances. When there is any uncertainty about whether one or more items are clearly trivial, the misstatement is considered not to be clearly trivial.\n\n###### Misstatements in Individual Statements\n\n1.  The auditor may designate an amount below which misstatements of amounts in the individual statements would be clearly trivial, and would not need to be accumulated because the auditor expects that the accumulation of such amounts clearly would not have a material effect on the financial report. However, misstatements of amounts that are above the designated amount are accumulated as required by paragraph 5 of this Auditing Standard. In addition, misstatements relating to amounts may not be clearly trivial when judged on criteria of nature or circumstances, and, if not, are accumulated as required by paragraph 5 of this Auditing Standard.\n\n###### Misstatements in Disclosures\n\n1.  Misstatements in disclosures may also be clearly trivial whether taken individually or in aggregate, and whether judged by any criteria of size, nature or circumstances. Misstatements in disclosures that are not clearly trivial are also accumulated to assist the auditor in evaluating the effect of such misstatements on the relevant disclosures and the financial report as a whole. Paragraph A14 of this Auditing Standard provides examples of where misstatements in qualitative disclosures may be material.\n\n###### Accumulation of Misstatements\n\n1.  Misstatements by nature or circumstances, accumulated as described in paragraphs A3‑A4, cannot be added together as is possible in the case of misstatements of amounts. Nevertheless, the auditor is required by paragraph 11 of this Auditing Standard to evaluate those misstatements individually and in aggregate (i.e., collectively with other misstatements) to determine whether they are material.\n2.  To assist the auditor in evaluating the effect of misstatements accumulated during the audit and in communicating misstatements to management and those charged with governance, it may be useful to distinguish between factual misstatements, judgemental misstatements and projected misstatements.\n\nMisstatements in Disclosures\n\n-   Factual misstatements are misstatements about which there is no doubt.\n-   Judgemental misstatements are differences arising from the judgements of management including those concerning recognition, measurement, presentation and disclosure in the financial report (including the selection or application of accounting policies) that the auditor considers unreasonable or inappropriate.\n-   Projected misstatements are the auditor’s best estimate of misstatements in populations, involving the projection of misstatements identified in audit samples to the entire populations from which the samples were drawn. Guidance on the determination of projected misstatements and evaluation of the results is set out in ASA 530.[\\[9\\]](#_ftn9)\n\n###### Consideration of Identified Misstatements as the Audit Progresses (Ref: Para. 6‑7)\n\n1.  A misstatement may not be an isolated occurrence. Evidence that other misstatements may exist include, for example, where the auditor identifies that a misstatement arose from a breakdown in internal control or from inappropriate assumptions or valuation methods that have been widely applied by the entity.\n2.  If the aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ASA 320, there may be a greater than acceptably low level of risk that possible undetected misstatements, when taken with the aggregate of misstatements accumulated during the audit, could exceed materiality. Undetected misstatements could exist because of the presence of sampling risk and non‑sampling risk.[\\[10\\]](#_ftn10)\n3.  The auditor may request management to examine a class of transactions, account balances or disclosures in order for management to understand the cause of a misstatement identified by the auditor, perform procedures to determine the amount of the actual misstatement in the class of transactions, account balance or disclosure, and to make appropriate adjustments to the financial report. Such a request may be made, for example, based on the auditor’s projection of misstatements identified in an audit sample to the entire population from which it was drawn.\n\n###### Communication and Correction of Misstatements (Ref: Para. 8‑9)\n\n1.  Timely communication of misstatements to the appropriate level of management is important as it enables management to evaluate whether the classes of transactions, account balances and disclosures are misstated, inform the auditor if it disagrees, and take action as necessary. Ordinarily, the appropriate level of management is the one that has responsibility and authority to evaluate the misstatements and to take the necessary action.\n2.  In some jurisdictions, law or regulation may restrict the auditor’s communication of certain misstatements to management, or others, within the entity. Law or regulation may specifically prohibit a communication, or other action, that might prejudice an investigation by an appropriate authority into an actual, or suspected, illegal act, including alerting the entity, for example, when the auditor is required to report identified or suspected non-compliance with law or regulation to an appropriate authority pursuant to anti-money laundering legislation. In these circumstances, the issues considered by the auditor may be complex[\\[\\*\\]](#_ftn11) and the auditor may consider it appropriate to obtain legal advice.\n3.  The correction by management of all misstatements, including those communicated by the auditor, enables management to maintain accurate accounting books and records and reduces the risks of material misstatement of future financial reports because of the cumulative effect of immaterial uncorrected misstatements related to prior periods.\n4.  ASA 700 requires the auditor to evaluate whether the financial report is prepared and presented, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation includes consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgements,[\\[11\\]](#_ftn12) which may be affected by the auditor’s understanding of management’s reasons for not making the corrections.\n\n###### Evaluating the Effect of Uncorrected Misstatements (Ref: Para. 10‑11)\n\n1.  The auditor’s determination of materiality in accordance with ASA 320 is often based on estimates of the entity’s financial results, because the actual financial results may not yet be known. Therefore, prior to the auditor’s evaluation of the effect of uncorrected misstatements, it may be necessary to revise materiality determined in accordance with ASA 320 based on the actual financial results.\n2.  ASA 320 explains that, as the audit progresses, materiality for the financial report as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) is revised in the event of the auditor becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially.[\\[12\\]](#_ftn13) Thus, any significant revision is likely to have been made before the auditor evaluates the effect of uncorrected misstatements. However, if the auditor’s reassessment of materiality determined in accordance with ASA 320 (see paragraph 10) gives rise to a lower amount (or amounts), then performance materiality and the appropriateness of the nature, timing and extent of the further audit procedures are reconsidered so as to obtain sufficient appropriate audit evidence on which to base the audit opinion.\n3.  Each individual misstatement of an amount is considered to evaluate its effect on the relevant classes of transactions, account balances or disclosures, including whether the materiality level for that particular class of transactions, account balance or disclosure, if any, has been exceeded.\n4.  In addition, each individual misstatement of a qualitative disclosure is considered to evaluate its effect on the relevant disclosure(s), as well as its overall effect on the financial report as a whole. The determination of whether a misstatement(s) in a qualitative disclosure is material, in the context of the applicable financial reporting framework and the specific circumstances of the entity, is a matter that involves the exercise of professional judgement. Examples where such misstatements may be material include:\n\n-   Inaccurate or incomplete descriptions of information about the objectives, policies and processes for managing capital for entities with insurance and banking activities.\n-   The omission of information about the events or circumstances that have led to an impairment loss (e.g., a significant long‑term decline in the demand for a metal or commodity) in an entity with mining operations.\n-   The incorrect description of an accounting policy relating to a significant item in the statement of financial position, the statement of comprehensive income, the statement of changes in equity or the statement of cash flows.\n-   The inadequate description of the sensitivity of an exchange rate in an entity that undertakes International trading activities.\n\n1.  In determining whether uncorrected misstatements by nature are material as required by paragraph 11 of this Auditing Standard, the auditor considers uncorrected misstatements in amounts and disclosures. Such misstatements may be considered material either individually, or when taken in combination with other misstatements. For example, depending on the misstatements identified in disclosures, the auditor may consider whether:\n    1.  Identified errors are persistent or pervasive; or\n    2.  A number of identified misstatements are relevant to the same matter, and considered collectively may affect the users’ understanding of that matter.\n\nThis consideration of accumulated misstatements is also helpful when evaluating the financial report in accordance with paragraph 13(d) of ASA 700, which requires the auditor to consider whether the overall presentation of the financial report has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed.[\\[13\\]](#_ftn14)\n\n1.  If an individual misstatement is judged to be material, it is unlikely that it can be offset by other misstatements. For example, if revenue has been materially overstated, the financial report as a whole will be materially misstated, even if the effect of the misstatement on earnings is completely offset by an equivalent overstatement of expenses. It may be appropriate to offset misstatements within the same account balance or class of transactions; however, the risk that further undetected misstatements may exist is considered before concluding that offsetting even immaterial misstatements is appropriate.[\\[14\\]](#_ftn15)\n2.  Determining whether a classification misstatement is material involves the evaluation of qualitative considerations, such as the effect of the classification misstatement on debt or other contractual covenants, the effect on individual line items or sub‑totals, or the effect on key ratios. There may be circumstances where the auditor concludes that a classification misstatement is not material in the context of the financial report as a whole, even though it may exceed the materiality level or levels applied in evaluating other misstatements. For example, a misclassification between balance sheet line items may not be considered material in the context of the financial report as a whole when the amount of the misclassification is small in relation to the size of the related balance sheet line items and the misclassification does not affect the income statement or any key ratios.\n3.  The circumstances related to some misstatements may cause the auditor to evaluate them as material, individually or when considered together with other misstatements accumulated during the audit, even if they are lower than materiality for the financial report as a whole. Circumstances that may affect the evaluation include the extent to which the misstatement:\n\n-   Affects compliance with regulatory requirements;\n-   Affects compliance with debt covenants or other contractual requirements;\n-   Relates to the incorrect selection or application of an accounting policy that has an immaterial effect on the current period’s financial report but is likely to have a material effect on future periods’ financial reports;\n-   Masks a change in earnings or other trends, especially in the context of general economic and industry conditions;\n-   Affects ratios used to evaluate the entity’s financial position, results of operations or cash flows;\n-   Affects segment information presented in the financial report (for example, the significance of the matter to a segment or other portion of the entity’s business that has been identified as playing a significant role in the entity’s operations or profitability);\n-   Has the effect of increasing management compensation, for example, by ensuring that the requirements for the award of bonuses or other incentives are satisfied;\n-   Is significant having regard to the auditor’s understanding of known previous communications to users, for example, in relation to forecast earnings;\n-   Relates to items involving particular parties (for example, whether external parties to the transaction are related to members of the entity’s management);\n-   Is an omission of information not specifically required by the applicable financial reporting framework but which, in the judgement of the auditor, is important to the users’ understanding of the financial position, financial performance or cash flows of the entity; or\n-   Affects other information to be included in the entity’s annual report (for example, information to be included in a “Management Discussion and Analysis” or an “Operating and Financial Review”) that may reasonably be expected to influence the economic decisions of the users of the financial report. ASA 720[\\[15\\]](#_ftn16) deals with the auditor’s responsibilities relating to other information.\n\nThese circumstances are only examples; not all are likely to be present in all audits nor is the list necessarily complete. The existence of any circumstances such as these does not necessarily lead to a conclusion that the misstatement is material.\n\n1.  ASA 240[\\[16\\]](#_ftn17) explains how the implications of a misstatement that is, or may be, the result of fraud ought to be considered in relation to other aspects of the audit, even if the size of the misstatement is not material in relation to the financial report. Depending on the circumstances, misstatements in disclosures could also be indicative of fraud, and, for example, may arise from:\n\n-   Misleading disclosures that have resulted from bias in management’s judgements; or\n-   Extensive duplicative or uninformative disclosures that are intended to obscure a proper understanding of matters in the financial report.\n\nWhen considering the implications of misstatements in classes of transactions, account balances and disclosures, the auditor exercises professional scepticism in accordance with ASA 200.[\\[17\\]](#_ftn18)\n\n1.  The cumulative effect of immaterial uncorrected misstatements related to prior periods may have a material effect on the current period’s financial report. There are different acceptable approaches to the auditor’s evaluation of such uncorrected misstatements on the current period’s financial report. Using the same evaluation approach provides consistency from period to period.\n\nConsiderations Specific to Public Sector Entities (Ref: Para 11(a))\n\n1.  In the case of an audit of a public sector entity, the evaluation whether a misstatement is material may also be affected by the auditor’s responsibilities established by law, regulation or other authority to report specific matters, including, for example, fraud.\n2.  Furthermore, issues such as public interest, accountability, probity and ensuring effective legislative oversight, in particular, may affect the assessment whether an item is material by virtue of its nature. This is particularly so for items that relate to compliance with law, regulation, or other authority.\n\nCommunication with Those Charged with Governance (Ref: Para. 12)\n\n1.  If uncorrected misstatements have been communicated with person(s) with management responsibilities, and those person(s) also have governance responsibilities, they need not be communicated again with those same person(s) in their governance role. The auditor nonetheless has to be satisfied that communication with person(s) with management responsibilities adequately informs all of those with whom the auditor would otherwise communicate in their governance capacity.[\\[18\\]](#_ftn19)\n2.  Where there is a large number of individual immaterial uncorrected misstatements, the auditor may communicate the number and overall monetary effect of the uncorrected misstatements, rather than the details of each individual uncorrected misstatement.\n3.  ASA 260 requires the auditor to communicate with those charged with governance the written representations the auditor is requesting (see paragraph 14).[\\[19\\]](#_ftn20) The auditor may discuss with those charged with governance the reasons for, and the implications of, a failure to correct misstatements, having regard to the size and nature of the misstatement judged in the surrounding circumstances, and possible implications in relation to a future financial report.\n\n###### Written Representation (Ref: Para. 14)\n\n1.  Because the preparation of the financial report requires management and, where appropriate, those charged with governance to adjust the financial report to correct material misstatements, the auditor is required to request them to provide a written representation about uncorrected misstatements.[\\[\\*\\]](#_ftn21) In some circumstances, management and, where appropriate, those charged with governance may not believe that certain uncorrected misstatements are misstatements. For that reason, they may want to add to their written representation words such as: “We do not agree that items … and … constitute misstatements because \\[description of reasons\\].” Obtaining this representation does not, however, relieve the auditor of the need to form a conclusion on the effect of uncorrected misstatements.\n\n###### Documentation (Ref: Para. 15)\n\n1.  The auditor’s documentation of uncorrected misstatements may take into account:\n    1.  The consideration of the aggregate effect of uncorrected misstatements;\n    2.  The evaluation of whether the materiality level or levels for particular classes of transactions, account balances or disclosures, if any, have been exceeded; and\n    3.  The evaluation of the effect of uncorrected misstatements on key ratios or trends, and compliance with legal, regulatory and contractual requirements (for example, debt covenants).","sortOrder":19},{"sectionNumber":"Accumulation of Identified Misstatements","sectionType":"section","heading":"Accumulation of Identified Misstatements","content":"###### Accumulation of Identified Misstatements\n\n1.  The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial. (Ref: Para. A2‑A6)","sortOrder":20},{"sectionNumber":"Consideration of Identified Misstatement","sectionType":"section","heading":"Consideration of Identified Misstatements as the Audit Progresses","content":"###### Consideration of Identified Misstatements as the Audit Progresses\n\n1.  The auditor shall determine whether the overall audit strategy and audit plan need to be revised if:\n    1.  The nature of identified misstatements and the circumstances of their occurrence indicate that other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material; or (Ref: Para. A7)\n    2.  The aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ASA 320\\. (Ref: Para. A8)\n2.  If, at the auditor’s request, management has examined a class of transactions, account balances or disclosures and corrected misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain. (Ref: Para. A9)","sortOrder":21},{"sectionNumber":"Communication and Correction of Misstate","sectionType":"section","heading":"Communication and Correction of Misstatements","content":"###### Communication and Correction of Misstatements\n\n1.  The auditor shall communicate, unless prohibited by law or regulation, on a timely basis all misstatements accumulated during the audit with the appropriate level of management.[\\[3\\]](#_ftn3) The auditor shall request management to correct those misstatements. (Ref: Para. A10‑A12)\n2.  If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an understanding of management’s reasons for not making the corrections and shall take that understanding into account when evaluating whether the financial report as a whole is free from material misstatement. (Ref: Para. A13)","sortOrder":22},{"sectionNumber":"Evaluating the Effect of Uncorrected Mis","sectionType":"section","heading":"Evaluating the Effect of Uncorrected Misstatements","content":"###### Evaluating the Effect of Uncorrected Misstatements\n\n1.  Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality determined in accordance with ASA 320 to confirm whether it remains appropriate in the context of the entity’s actual financial results. (Ref: Para. A14‑A15)\n2.  The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, the auditor shall consider:\n    1.  The size and nature of the misstatements, both in relation to particular classes of transactions, account balances or disclosures and the financial report as a whole, and the particular circumstances of their occurrence; and (Ref: Para. A16‑A22, A24‑A25)\n    2.  The effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial report as a whole. (Ref: Para. A23)\n\nCommunication with Those Charged with Governance\n\n1.  The auditor shall communicate with those charged with governance uncorrected misstatements and the effect that they, individually or in aggregate, may have on the opinion in the auditor’s report, unless prohibited by law or regulation.[\\[4\\]](#_ftn4) The auditor’s communication shall identify material uncorrected misstatements individually. The auditor shall request that uncorrected misstatements be corrected. (Ref: Para. A26‑A28)\n2.  The auditor shall also communicate with those charged with governance the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial report as a whole.","sortOrder":23},{"sectionNumber":"Written Representation","sectionType":"section","heading":"Written Representation","content":"###### Written Representation\n\n1.  The auditor shall request a written representation from management and, where appropriate, those charged with governance whether they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial report as a whole. A summary of such items shall be included in or attached to the written representation. (Ref: Para. A29)","sortOrder":24},{"sectionNumber":"Documentation","sectionType":"section","heading":"Documentation","content":"###### Documentation\n\n1.  The auditor shall include in the audit documentation:[\\[5\\]](#_ftn5) (Ref: Para. A30)\n    1.  The amount below which misstatements would be regarded as clearly trivial (see paragraph 5 of this Auditing Standard);\n    2.  All misstatements accumulated during the audit and whether they have been corrected (see paragraphs 5, 8 and 12 of this Auditing Standard); and\n    3.  The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in aggregate, and the basis for that conclusion (see paragraph 11 of this Auditing Standard).\n\n\\* \\* \\*","sortOrder":25},{"sectionNumber":"Application and Other Explanatory Materi","sectionType":"section","heading":"Application and Other Explanatory Material","content":"##### Objective\n\n1.  The objective of the auditor is to evaluate:\n    1.  The effect of identified misstatements on the audit; and\n    2.  The effect of uncorrected misstatements, if any, on the financial report.\n\n##### Definitions\n\n1.  For the purposes of this Auditing Standard, the following terms have the meanings attributed below:\n    1.  Misstatement means a difference between the reported amount, classification, presentation, or disclosure of a financial report item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. (Ref: Para. A1)\n\nWhen the auditor expresses an opinion on whether the financial report is presented fairly, in all material respects, or gives a true and fair view, misstatements also include those adjustments of amounts, classifications, presentation, or disclosures that, in the auditor’s judgement, are necessary for the financial report to be presented fairly, in all material respects, or to give a true and fair view.\n\n1.  Uncorrected misstatements means misstatements that the auditor has accumulated during the audit and that have not been corrected.\n\n##### Requirements\n\n###### Accumulation of Identified Misstatements\n\n1.  The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial. (Ref: Para. A2‑A6)\n\n###### Consideration of Identified Misstatements as the Audit Progresses\n\n1.  The auditor shall determine whether the overall audit strategy and audit plan need to be revised if:\n    1.  The nature of identified misstatements and the circumstances of their occurrence indicate that other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material; or (Ref: Para. A7)\n    2.  The aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ASA 320\\. (Ref: Para. A8)\n2.  If, at the auditor’s request, management has examined a class of transactions, account balances or disclosures and corrected misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain. (Ref: Para. A9)\n\n###### Communication and Correction of Misstatements\n\n1.  The auditor shall communicate, unless prohibited by law or regulation, on a timely basis all misstatements accumulated during the audit with the appropriate level of management.[\\[3\\]](#_ftn3) The auditor shall request management to correct those misstatements. (Ref: Para. A10‑A12)\n2.  If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an understanding of management’s reasons for not making the corrections and shall take that understanding into account when evaluating whether the financial report as a whole is free from material misstatement. (Ref: Para. A13)\n\n###### Evaluating the Effect of Uncorrected Misstatements\n\n1.  Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality determined in accordance with ASA 320 to confirm whether it remains appropriate in the context of the entity’s actual financial results. (Ref: Para. A14‑A15)\n2.  The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, the auditor shall consider:\n    1.  The size and nature of the misstatements, both in relation to particular classes of transactions, account balances or disclosures and the financial report as a whole, and the particular circumstances of their occurrence; and (Ref: Para. A16‑A22, A24‑A25)\n    2.  The effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial report as a whole. (Ref: Para. A23)\n\nCommunication with Those Charged with Governance\n\n1.  The auditor shall communicate with those charged with governance uncorrected misstatements and the effect that they, individually or in aggregate, may have on the opinion in the auditor’s report, unless prohibited by law or regulation.[\\[4\\]](#_ftn4) The auditor’s communication shall identify material uncorrected misstatements individually. The auditor shall request that uncorrected misstatements be corrected. (Ref: Para. A26‑A28)\n2.  The auditor shall also communicate with those charged with governance the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial report as a whole.\n\n###### Written Representation\n\n1.  The auditor shall request a written representation from management and, where appropriate, those charged with governance whether they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial report as a whole. A summary of such items shall be included in or attached to the written representation. (Ref: Para. A29)\n\n###### Documentation\n\n1.  The auditor shall include in the audit documentation:[\\[5\\]](#_ftn5) (Ref: Para. A30)\n    1.  The amount below which misstatements would be regarded as clearly trivial (see paragraph 5 of this Auditing Standard);\n    2.  All misstatements accumulated during the audit and whether they have been corrected (see paragraphs 5, 8 and 12 of this Auditing Standard); and\n    3.  The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in aggregate, and the basis for that conclusion (see paragraph 11 of this Auditing Standard).\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Definition of Misstatement (Ref: Para. 4(a))\n\n1.  Misstatements may result from:\n    1.  An inaccuracy in gathering or processing data from which the financial report is prepared;\n    2.  An omission of an amount or disclosure, including inadequate or incomplete disclosures, and those disclosures required to meet disclosure objectives of certain financial reporting frameworks as applicable[\\[6\\]](#_ftn6);\n    3.  An incorrect accounting estimate arising from overlooking, or clear misinterpretation of, facts;\n    4.  Judgements of management concerning accounting estimates that the auditor considers unreasonable or the selection and application of accounting policies that the auditor considers inappropriate.\n    5.  An inappropriate classification, aggregation or disaggregation, of information; and\n    6.  For a financial report prepared in accordance with a fair presentation framework, the omission of a disclosure necessary for the financial report to achieve fair presentation beyond disclosures specifically required by the framework.[\\[7\\]](#_ftn7)\n\nExamples of misstatements arising from fraud are provided in ASA 240.[\\[8\\]](#_ftn8)\n\n###### Accumulation of Identified Misstatements (Ref: Para. 5)\n\n1.  Paragraph 5 of this Auditing Standard requires the auditor to accumulate misstatements identified during the audit other than those that are clearly trivial. “Clearly trivial” is not another expression for “not material.” Misstatements that are clearly trivial will be of a wholly different (smaller) order of magnitude, or of a wholly different nature than those that would be determined to be material, and will be matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances. When there is any uncertainty about whether one or more items are clearly trivial, the misstatement is considered not to be clearly trivial.\n\n###### Misstatements in Individual Statements\n\n1.  The auditor may designate an amount below which misstatements of amounts in the individual statements would be clearly trivial, and would not need to be accumulated because the auditor expects that the accumulation of such amounts clearly would not have a material effect on the financial report. However, misstatements of amounts that are above the designated amount are accumulated as required by paragraph 5 of this Auditing Standard. In addition, misstatements relating to amounts may not be clearly trivial when judged on criteria of nature or circumstances, and, if not, are accumulated as required by paragraph 5 of this Auditing Standard.\n\n###### Misstatements in Disclosures\n\n1.  Misstatements in disclosures may also be clearly trivial whether taken individually or in aggregate, and whether judged by any criteria of size, nature or circumstances. Misstatements in disclosures that are not clearly trivial are also accumulated to assist the auditor in evaluating the effect of such misstatements on the relevant disclosures and the financial report as a whole. Paragraph A14 of this Auditing Standard provides examples of where misstatements in qualitative disclosures may be material.\n\n###### Accumulation of Misstatements\n\n1.  Misstatements by nature or circumstances, accumulated as described in paragraphs A3‑A4, cannot be added together as is possible in the case of misstatements of amounts. Nevertheless, the auditor is required by paragraph 11 of this Auditing Standard to evaluate those misstatements individually and in aggregate (i.e., collectively with other misstatements) to determine whether they are material.\n2.  To assist the auditor in evaluating the effect of misstatements accumulated during the audit and in communicating misstatements to management and those charged with governance, it may be useful to distinguish between factual misstatements, judgemental misstatements and projected misstatements.\n\nMisstatements in Disclosures\n\n-   Factual misstatements are misstatements about which there is no doubt.\n-   Judgemental misstatements are differences arising from the judgements of management including those concerning recognition, measurement, presentation and disclosure in the financial report (including the selection or application of accounting policies) that the auditor considers unreasonable or inappropriate.\n-   Projected misstatements are the auditor’s best estimate of misstatements in populations, involving the projection of misstatements identified in audit samples to the entire populations from which the samples were drawn. Guidance on the determination of projected misstatements and evaluation of the results is set out in ASA 530.[\\[9\\]](#_ftn9)\n\n###### Consideration of Identified Misstatements as the Audit Progresses (Ref: Para. 6‑7)\n\n1.  A misstatement may not be an isolated occurrence. Evidence that other misstatements may exist include, for example, where the auditor identifies that a misstatement arose from a breakdown in internal control or from inappropriate assumptions or valuation methods that have been widely applied by the entity.\n2.  If the aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ASA 320, there may be a greater than acceptably low level of risk that possible undetected misstatements, when taken with the aggregate of misstatements accumulated during the audit, could exceed materiality. Undetected misstatements could exist because of the presence of sampling risk and non‑sampling risk.[\\[10\\]](#_ftn10)\n3.  The auditor may request management to examine a class of transactions, account balances or disclosures in order for management to understand the cause of a misstatement identified by the auditor, perform procedures to determine the amount of the actual misstatement in the class of transactions, account balance or disclosure, and to make appropriate adjustments to the financial report. Such a request may be made, for example, based on the auditor’s projection of misstatements identified in an audit sample to the entire population from which it was drawn.\n\n###### Communication and Correction of Misstatements (Ref: Para. 8‑9)\n\n1.  Timely communication of misstatements to the appropriate level of management is important as it enables management to evaluate whether the classes of transactions, account balances and disclosures are misstated, inform the auditor if it disagrees, and take action as necessary. Ordinarily, the appropriate level of management is the one that has responsibility and authority to evaluate the misstatements and to take the necessary action.\n2.  In some jurisdictions, law or regulation may restrict the auditor’s communication of certain misstatements to management, or others, within the entity. Law or regulation may specifically prohibit a communication, or other action, that might prejudice an investigation by an appropriate authority into an actual, or suspected, illegal act, including alerting the entity, for example, when the auditor is required to report identified or suspected non-compliance with law or regulation to an appropriate authority pursuant to anti-money laundering legislation. In these circumstances, the issues considered by the auditor may be complex[\\[\\*\\]](#_ftn11) and the auditor may consider it appropriate to obtain legal advice.\n3.  The correction by management of all misstatements, including those communicated by the auditor, enables management to maintain accurate accounting books and records and reduces the risks of material misstatement of future financial reports because of the cumulative effect of immaterial uncorrected misstatements related to prior periods.\n4.  ASA 700 requires the auditor to evaluate whether the financial report is prepared and presented, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation includes consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgements,[\\[11\\]](#_ftn12) which may be affected by the auditor’s understanding of management’s reasons for not making the corrections.\n\n###### Evaluating the Effect of Uncorrected Misstatements (Ref: Para. 10‑11)\n\n1.  The auditor’s determination of materiality in accordance with ASA 320 is often based on estimates of the entity’s financial results, because the actual financial results may not yet be known. Therefore, prior to the auditor’s evaluation of the effect of uncorrected misstatements, it may be necessary to revise materiality determined in accordance with ASA 320 based on the actual financial results.\n2.  ASA 320 explains that, as the audit progresses, materiality for the financial report as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) is revised in the event of the auditor becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially.[\\[12\\]](#_ftn13) Thus, any significant revision is likely to have been made before the auditor evaluates the effect of uncorrected misstatements. However, if the auditor’s reassessment of materiality determined in accordance with ASA 320 (see paragraph 10) gives rise to a lower amount (or amounts), then performance materiality and the appropriateness of the nature, timing and extent of the further audit procedures are reconsidered so as to obtain sufficient appropriate audit evidence on which to base the audit opinion.\n3.  Each individual misstatement of an amount is considered to evaluate its effect on the relevant classes of transactions, account balances or disclosures, including whether the materiality level for that particular class of transactions, account balance or disclosure, if any, has been exceeded.\n4.  In addition, each individual misstatement of a qualitative disclosure is considered to evaluate its effect on the relevant disclosure(s), as well as its overall effect on the financial report as a whole. The determination of whether a misstatement(s) in a qualitative disclosure is material, in the context of the applicable financial reporting framework and the specific circumstances of the entity, is a matter that involves the exercise of professional judgement. Examples where such misstatements may be material include:\n\n-   Inaccurate or incomplete descriptions of information about the objectives, policies and processes for managing capital for entities with insurance and banking activities.\n-   The omission of information about the events or circumstances that have led to an impairment loss (e.g., a significant long‑term decline in the demand for a metal or commodity) in an entity with mining operations.\n-   The incorrect description of an accounting policy relating to a significant item in the statement of financial position, the statement of comprehensive income, the statement of changes in equity or the statement of cash flows.\n-   The inadequate description of the sensitivity of an exchange rate in an entity that undertakes International trading activities.\n\n1.  In determining whether uncorrected misstatements by nature are material as required by paragraph 11 of this Auditing Standard, the auditor considers uncorrected misstatements in amounts and disclosures. Such misstatements may be considered material either individually, or when taken in combination with other misstatements. For example, depending on the misstatements identified in disclosures, the auditor may consider whether:\n    1.  Identified errors are persistent or pervasive; or\n    2.  A number of identified misstatements are relevant to the same matter, and considered collectively may affect the users’ understanding of that matter.\n\nThis consideration of accumulated misstatements is also helpful when evaluating the financial report in accordance with paragraph 13(d) of ASA 700, which requires the auditor to consider whether the overall presentation of the financial report has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed.[\\[13\\]](#_ftn14)\n\n1.  If an individual misstatement is judged to be material, it is unlikely that it can be offset by other misstatements. For example, if revenue has been materially overstated, the financial report as a whole will be materially misstated, even if the effect of the misstatement on earnings is completely offset by an equivalent overstatement of expenses. It may be appropriate to offset misstatements within the same account balance or class of transactions; however, the risk that further undetected misstatements may exist is considered before concluding that offsetting even immaterial misstatements is appropriate.[\\[14\\]](#_ftn15)\n2.  Determining whether a classification misstatement is material involves the evaluation of qualitative considerations, such as the effect of the classification misstatement on debt or other contractual covenants, the effect on individual line items or sub‑totals, or the effect on key ratios. There may be circumstances where the auditor concludes that a classification misstatement is not material in the context of the financial report as a whole, even though it may exceed the materiality level or levels applied in evaluating other misstatements. For example, a misclassification between balance sheet line items may not be considered material in the context of the financial report as a whole when the amount of the misclassification is small in relation to the size of the related balance sheet line items and the misclassification does not affect the income statement or any key ratios.\n3.  The circumstances related to some misstatements may cause the auditor to evaluate them as material, individually or when considered together with other misstatements accumulated during the audit, even if they are lower than materiality for the financial report as a whole. Circumstances that may affect the evaluation include the extent to which the misstatement:\n\n-   Affects compliance with regulatory requirements;\n-   Affects compliance with debt covenants or other contractual requirements;\n-   Relates to the incorrect selection or application of an accounting policy that has an immaterial effect on the current period’s financial report but is likely to have a material effect on future periods’ financial reports;\n-   Masks a change in earnings or other trends, especially in the context of general economic and industry conditions;\n-   Affects ratios used to evaluate the entity’s financial position, results of operations or cash flows;\n-   Affects segment information presented in the financial report (for example, the significance of the matter to a segment or other portion of the entity’s business that has been identified as playing a significant role in the entity’s operations or profitability);\n-   Has the effect of increasing management compensation, for example, by ensuring that the requirements for the award of bonuses or other incentives are satisfied;\n-   Is significant having regard to the auditor’s understanding of known previous communications to users, for example, in relation to forecast earnings;\n-   Relates to items involving particular parties (for example, whether external parties to the transaction are related to members of the entity’s management);\n-   Is an omission of information not specifically required by the applicable financial reporting framework but which, in the judgement of the auditor, is important to the users’ understanding of the financial position, financial performance or cash flows of the entity; or\n-   Affects other information to be included in the entity’s annual report (for example, information to be included in a “Management Discussion and Analysis” or an “Operating and Financial Review”) that may reasonably be expected to influence the economic decisions of the users of the financial report. ASA 720[\\[15\\]](#_ftn16) deals with the auditor’s responsibilities relating to other information.\n\nThese circumstances are only examples; not all are likely to be present in all audits nor is the list necessarily complete. The existence of any circumstances such as these does not necessarily lead to a conclusion that the misstatement is material.\n\n1.  ASA 240[\\[16\\]](#_ftn17) explains how the implications of a misstatement that is, or may be, the result of fraud ought to be considered in relation to other aspects of the audit, even if the size of the misstatement is not material in relation to the financial report. Depending on the circumstances, misstatements in disclosures could also be indicative of fraud, and, for example, may arise from:\n\n-   Misleading disclosures that have resulted from bias in management’s judgements; or\n-   Extensive duplicative or uninformative disclosures that are intended to obscure a proper understanding of matters in the financial report.\n\nWhen considering the implications of misstatements in classes of transactions, account balances and disclosures, the auditor exercises professional scepticism in accordance with ASA 200.[\\[17\\]](#_ftn18)\n\n1.  The cumulative effect of immaterial uncorrected misstatements related to prior periods may have a material effect on the current period’s financial report. There are different acceptable approaches to the auditor’s evaluation of such uncorrected misstatements on the current period’s financial report. Using the same evaluation approach provides consistency from period to period.\n\nConsiderations Specific to Public Sector Entities (Ref: Para 11(a))\n\n1.  In the case of an audit of a public sector entity, the evaluation whether a misstatement is material may also be affected by the auditor’s responsibilities established by law, regulation or other authority to report specific matters, including, for example, fraud.\n2.  Furthermore, issues such as public interest, accountability, probity and ensuring effective legislative oversight, in particular, may affect the assessment whether an item is material by virtue of its nature. This is particularly so for items that relate to compliance with law, regulation, or other authority.\n\nCommunication with Those Charged with Governance (Ref: Para. 12)\n\n1.  If uncorrected misstatements have been communicated with person(s) with management responsibilities, and those person(s) also have governance responsibilities, they need not be communicated again with those same person(s) in their governance role. The auditor nonetheless has to be satisfied that communication with person(s) with management responsibilities adequately informs all of those with whom the auditor would otherwise communicate in their governance capacity.[\\[18\\]](#_ftn19)\n2.  Where there is a large number of individual immaterial uncorrected misstatements, the auditor may communicate the number and overall monetary effect of the uncorrected misstatements, rather than the details of each individual uncorrected misstatement.\n3.  ASA 260 requires the auditor to communicate with those charged with governance the written representations the auditor is requesting (see paragraph 14).[\\[19\\]](#_ftn20) The auditor may discuss with those charged with governance the reasons for, and the implications of, a failure to correct misstatements, having regard to the size and nature of the misstatement judged in the surrounding circumstances, and possible implications in relation to a future financial report.\n\n###### Written Representation (Ref: Para. 14)\n\n1.  Because the preparation of the financial report requires management and, where appropriate, those charged with governance to adjust the financial report to correct material misstatements, the auditor is required to request them to provide a written representation about uncorrected misstatements.[\\[\\*\\]](#_ftn21) In some circumstances, management and, where appropriate, those charged with governance may not believe that certain uncorrected misstatements are misstatements. For that reason, they may want to add to their written representation words such as: “We do not agree that items … and … constitute misstatements because \\[description of reasons\\].” Obtaining this representation does not, however, relieve the auditor of the need to form a conclusion on the effect of uncorrected misstatements.\n\n###### Documentation (Ref: Para. 15)\n\n1.  The auditor’s documentation of uncorrected misstatements may take into account:\n    1.  The consideration of the aggregate effect of uncorrected misstatements;\n    2.  The evaluation of whether the materiality level or levels for particular classes of transactions, account balances or disclosures, if any, have been exceeded; and\n    3.  The evaluation of the effect of uncorrected misstatements on key ratios or trends, and compliance with legal, regulatory and contractual requirements (for example, debt covenants).","sortOrder":26},{"sectionNumber":"Definition of Misstatement (Ref: Para. 4","sectionType":"section","heading":"Definition of Misstatement (Ref: Para. 4(a))","content":"###### Definition of Misstatement (Ref: Para. 4(a))\n\n1.  Misstatements may result from:\n    1.  An inaccuracy in gathering or processing data from which the financial report is prepared;\n    2.  An omission of an amount or disclosure, including inadequate or incomplete disclosures, and those disclosures required to meet disclosure objectives of certain financial reporting frameworks as applicable[\\[6\\]](#_ftn6);\n    3.  An incorrect accounting estimate arising from overlooking, or clear misinterpretation of, facts;\n    4.  Judgements of management concerning accounting estimates that the auditor considers unreasonable or the selection and application of accounting policies that the auditor considers inappropriate.\n    5.  An inappropriate classification, aggregation or disaggregation, of information; and\n    6.  For a financial report prepared in accordance with a fair presentation framework, the omission of a disclosure necessary for the financial report to achieve fair presentation beyond disclosures specifically required by the framework.[\\[7\\]](#_ftn7)\n\nExamples of misstatements arising from fraud are provided in ASA 240.[\\[8\\]](#_ftn8)","sortOrder":27},{"sectionNumber":"Misstatements in Individual Statements","sectionType":"section","heading":"Misstatements in Individual Statements","content":"###### Misstatements in Individual Statements\n\n1.  The auditor may designate an amount below which misstatements of amounts in the individual statements would be clearly trivial, and would not need to be accumulated because the auditor expects that the accumulation of such amounts clearly would not have a material effect on the financial report. However, misstatements of amounts that are above the designated amount are accumulated as required by paragraph 5 of this Auditing Standard. In addition, misstatements relating to amounts may not be clearly trivial when judged on criteria of nature or circumstances, and, if not, are accumulated as required by paragraph 5 of this Auditing Standard.","sortOrder":29},{"sectionNumber":"Misstatements in Disclosures","sectionType":"section","heading":"Misstatements in Disclosures","content":"###### Misstatements in Disclosures\n\n1.  Misstatements in disclosures may also be clearly trivial whether taken individually or in aggregate, and whether judged by any criteria of size, nature or circumstances. Misstatements in disclosures that are not clearly trivial are also accumulated to assist the auditor in evaluating the effect of such misstatements on the relevant disclosures and the financial report as a whole. Paragraph A14 of this Auditing Standard provides examples of where misstatements in qualitative disclosures may be material.","sortOrder":30},{"sectionNumber":"Accumulation of Misstatements","sectionType":"section","heading":"Accumulation of Misstatements","content":"###### Accumulation of Misstatements\n\n1.  Misstatements by nature or circumstances, accumulated as described in paragraphs A3‑A4, cannot be added together as is possible in the case of misstatements of amounts. Nevertheless, the auditor is required by paragraph 11 of this Auditing Standard to evaluate those misstatements individually and in aggregate (i.e., collectively with other misstatements) to determine whether they are material.\n2.  To assist the auditor in evaluating the effect of misstatements accumulated during the audit and in communicating misstatements to management and those charged with governance, it may be useful to distinguish between factual misstatements, judgemental misstatements and projected misstatements.\n\nMisstatements in Disclosures\n\n-   Factual misstatements are misstatements about which there is no doubt.\n-   Judgemental misstatements are differences arising from the judgements of management including those concerning recognition, measurement, presentation and disclosure in the financial report (including the selection or application of accounting policies) that the auditor considers unreasonable or inappropriate.\n-   Projected misstatements are the auditor’s best estimate of misstatements in populations, involving the projection of misstatements identified in audit samples to the entire populations from which the samples were drawn. Guidance on the determination of projected misstatements and evaluation of the results is set out in ASA 530.[\\[9\\]](#_ftn9)","sortOrder":31},{"sectionNumber":"Written Representation (Ref: Para. 14)","sectionType":"section","heading":"Written Representation (Ref: Para. 14)","content":"###### Written Representation (Ref: Para. 14)\n\n1.  Because the preparation of the financial report requires management and, where appropriate, those charged with governance to adjust the financial report to correct material misstatements, the auditor is required to request them to provide a written representation about uncorrected misstatements.[\\[\\*\\]](#_ftn21) In some circumstances, management and, where appropriate, those charged with governance may not believe that certain uncorrected misstatements are misstatements. For that reason, they may want to add to their written representation words such as: “We do not agree that items … and … constitute misstatements because \\[description of reasons\\].” Obtaining this representation does not, however, relieve the auditor of the need to form a conclusion on the effect of uncorrected misstatements.","sortOrder":35},{"sectionNumber":"Documentation (Ref: Para. 15)","sectionType":"section","heading":"Documentation (Ref: Para. 15)","content":"###### Documentation (Ref: Para. 15)\n\n1.  The auditor’s documentation of uncorrected misstatements may take into account:\n    1.  The consideration of the aggregate effect of uncorrected misstatements;\n    2.  The evaluation of whether the materiality level or levels for particular classes of transactions, account balances or disclosures, if any, have been exceeded; and\n    3.  The evaluation of the effect of uncorrected misstatements on key ratios or trends, and compliance with legal, regulatory and contractual requirements (for example, debt covenants).","sortOrder":36}],"analysis":{"flash_summary_failed":{"failed":true,"reason":"Unauthenticated. Configure AI_GATEWAY_API_KEY or use a provider module. Learn more: https://ai-sdk.dev/unauthenticated-ai-gateway","source":"analysis-cron"},"kimi_summary":{"_metrics":{"provider":"moonshot","completionTokens":3131},"content_quality":"ok","complexity_score":6,"scope_assessment":{"changed":false,"description":"The amendments incorporated (ASA 2015-1 and ASA 2017-2) refined and clarified specific requirements—such as adding guidance on misstatements in individual statements and disclosures, and modifying communication protocols—but did not expand the scope beyond the original intent of evaluating misstatements identified during audits. The core mandate remains focused on auditor responsibilities for accumulating, communicating, and assessing the materiality of misstatements."},"complexity_factors":["Cross-references to at least 8 other Auditing Standards (ASA 101, 200, 240, 260, 320, 530, 700, 720)","30 paragraphs of Application and Other Explanatory Material (A1–A30) supplementing the main requirements","Technical defined terms requiring professional judgment, including \"misstatement,\" \"uncorrected misstatements,\" \"clearly trivial,\" and \"materiality\"","Conditional logic with exceptions (e.g., communication requirements that apply \"unless prohibited by law or regulation\")","Qualitative assessment requirements that go beyond simple numerical calculations (evaluating \"nature,\" \"circumstances,\" and qualitative disclosures)","Multiple operative dates and amendment layers (original October 2009 standard, amended by ASA 2015-1 and ASA 2017-2, with different commencement dates)"],"plain_english_summary":"**What this standard does**\n\nThis is a rulebook for auditors that sets out exactly how they must handle errors (called **misstatements**) found when checking a company's financial reports. It ensures auditors properly evaluate whether mistakes are serious enough to change someone's understanding of the company's finances.\n\n**Who it affects**\n\nThis applies to auditors conducting audits of:\n*   Financial reports for companies under the *Corporations Act 2001* (annual and half-year reports)\n*   Other financial reports or complete sets of financial statements\n*   Other historical financial information, where relevant\n\n**What auditors must do**\n\n*   **Keep a running list**: Accumulate every error found during the audit, except those that are **\"clearly trivial\"** (so small and inconsequential they obviously don't matter, whether looked at alone or added together).\n\n*   **Watch for warning signs**: If errors suggest bigger problems exist—such as a breakdown in internal controls—or if errors add up close to the **materiality** threshold (the point where errors become significant), the auditor must revise their audit plan and do more testing.\n\n*   **Communicate and request corrections**: Tell the appropriate level of management about the errors and ask them to fix them. If law or regulation prohibits this (for example, in some fraud investigations), the auditor must work around that restriction. If management refuses to correct errors, the auditor must understand their reasons and consider this when forming the final audit opinion.\n\n*   **Evaluate what is left**: Before finishing, reassess whether the \"materiality\" threshold is still correct based on actual financial results. Then determine whether any uncorrected errors are **material** (significant enough to matter) either individually or added together. This involves looking at:\n    *   The size and nature of errors\n    *   Whether they affect debt covenants (loan agreements), regulatory compliance, or management bonuses\n    *   Whether they hide trends or involve related parties\n    *   The cumulative effect of past errors\n\n*   **Tell the board**: Inform **those charged with governance** (such as the board of directors or audit committee) about uncorrected material errors and how these affect the audit opinion, unless prohibited by law.\n\n*   **Get written confirmation**: Obtain a formal **written representation** (a signed statement) from management—and the board, if appropriate—confirming they believe any remaining uncorrected errors are immaterial (not significant).\n\n*   **Document everything**: Keep detailed records of the \"clearly trivial\" threshold used, all errors found, whether they were corrected, and the final conclusion on materiality.\n\n**Why this matters**\n\nThis standard protects investors, creditors, and the public by ensuring auditors cannot simply ignore mistakes they find. It requires them to distinguish between minor slips and serious problems that could mislead people relying on financial statements, and to force company management to either fix errors or explain why they won't."},"flash_summary":{"complexity_score":6,"scope_assessment":{"changed":false,"description":"The standard as compiled to 30 May 2017 remains focused on the same core purpose it had at inception: requiring auditors to accumulate, evaluate, communicate and document misstatements and to reassess materiality where appropriate. Amendments and Australian‑specific paragraphs (the “Aus” additions) clarified communication, public sector concerns and documentation expectations and updated cross‑references, but they did not materially expand the standard’s fundamental scope or create a new regulatory remit. The changes are clarifying and implementation‑oriented rather than scope‑broadening."},"complexity_factors":["Multiple cross‑references to other Auditing Standards (ASA 320, 700, 240, 530, 260, 200, 101, 720) requiring readers to consult several documents for full application","Around 30 application and explanatory paragraphs (A1–A30) plus 15 numbered requirement paragraphs (paras 1–15) — sizable explanatory material","Several defined terms and distinctions (e.g. “misstatement”, “uncorrected misstatements”, “clearly trivial”, and types: factual/judgemental/projected)","Nested conditional logic (e.g. accumulation except if clearly trivial; communications unless prohibited by law; reassess materiality before evaluating uncorrected items)","Multiple exceptions and special considerations (public sector considerations, legal/regulatory prohibitions on communication)","Numerous examples and qualitative factors affecting materiality (lists in A14–A28) that require professional judgement","Amendment history and Australian‑specific additions (Aus paragraphs), increasing reading complexity to determine operative text and local variations","Documentation and representation requirements that create procedural steps to be followed and evidenced (para 15; A29–A30)"],"plain_english_summary":"**What this standard does (mechanics)**\n\n- ASA 450 tells auditors what to do when they find errors or other differences (called “misstatements”) in a client's financial information during an audit. It requires auditors to: \n  - collect and keep a record of all identified misstatements except those that are “clearly trivial” (paragraph 5; A2–A6);\n  - rethink the audit plan if the pattern or size of misstatements suggests more problems or if accumulated misstatements approach the materiality level set for the audit (paras 6–7; A7–A9);\n  - tell the appropriate level of management about accumulated misstatements promptly and ask for corrections, unless some law or regulation prevents that communication (paras 8–9; A10–A13);\n  - if management refuses to correct, obtain management’s reasons and factor those reasons into the auditor’s evaluation of the financial report (para 9; A13);\n  - reassess materiality in light of actual results before judging whether uncorrected misstatements are material (para 10; A14–A15);\n  - judge whether uncorrected misstatements are material individually or in aggregate, applying qualitative and quantitative considerations (para 11; A16–A28);\n  - request a written representation from management (and, where appropriate, those charged with governance) that the uncorrected misstatements are immaterial, with a summary attached (para 14; A29);\n  - document the triviality threshold, the list of accumulated misstatements (and whether they were corrected), and the auditor’s conclusion on materiality (para 15; A30).\n\n- The standard distinguishes types of misstatements (factual, judgemental, projected) and gives examples and factors to consider when judging materiality (Application material A3–A4, A14–A28).\n\n**Who it affects**\n\n- Primary: external auditors — it sets required audit procedures and documentation (paras 5–15).\n- Secondary: audit clients (management and those charged with governance) — they are expected to receive communications about misstatements, to correct them where appropriate, and to provide written representations if misstatements remain uncorrected (paras 8–9, 12, 14).\n- Users of financial reports (investors, creditors, regulators) — the standard is designed to improve the reliability of reported financial information by making auditor responses to misstatements systematic (paras 1, 11).\n- Public sector audits have additional considerations (Application material A22–A23).\n\n**Why it matters (purpose claims and testing them against costs and incentives)**\n\n- Purpose claimed by the standard: to ensure auditors evaluate the effect of misstatements (both corrected and uncorrected) on the audit and on the financial report and to ensure appropriate communication and documentation so users can rely on the auditor’s opinion (paras 1–3, Objective; cross‑refs to ASA 700 and ASA 320).\n\n- How that purpose is achieved mechanically: the standard makes auditors accumulate misstatements, reassess materiality when actual results are known, require communication and written confirmation, and demand documentation of the process and conclusions (paras 5, 10–15; A14–A30).\n\n- Costs and incentives:\n  - Who pays: audited entities and their owners ultimately pay for the auditor time and management time required to investigate, correct and document misstatements. That typically raises audit and internal compliance costs (paras 6–9, A9, A30).\n  - Who decides: auditors decide (using professional judgement) which items to accumulate, whether items are clearly trivial, whether the audit plan needs revision, and whether uncorrected misstatements are material (paras 5–7, 10–11; A2–A9, A14–A28). Management decides whether to correct proposed adjustments and supplies written representations (paras 8–9, 14; A29).\n  - Incentives created: auditors face incentives to be thorough and document their conclusions to support their opinion; management faces incentives to correct misstatements that would otherwise affect the auditor’s opinion, but may resist corrections for business or contractual reasons (para 9; A13).\n\n- Trade‑offs and implementation risks:\n  - Professional judgement: thresholds like “clearly trivial” and materiality need judgement; inconsistent application across audits can produce variability in outcomes (para 5; A2–A6).\n  - Delay and cost: retroactive revisions, additional testing, and documentation increase audit time and management workload (paras 6–9; A9, A30).\n  - Legal/regulatory constraints: where law prevents communication (e.g. to avoid prejudicing investigations), the auditor’s normal escalation and correction route may be blocked, complicating implementation and possibly requiring legal advice (para 8; A10–A13).\n  - Risk of inadequate correction: if management refuses to correct items, auditors must factor that into their opinion — but this increases the difficulty of forming a clear, defendable audit conclusion (para 9; A13).\n\n**Effects on private enterprise and markets (mechanisms, not verdicts)**\n\n- Direct effect: raises the standard of evidence and documentation auditors must gather about misstatements; this tends to increase audit effort and cost for entities (paras 5, 15; A30).\n- Indirect effects: more thorough handling of misstatements can change reported results and therefore affect covenants, compensation, investor signals and contracting outcomes where financial statements are relied upon (A21–A28).\n\n**Concentrated benefits and diffuse costs**\n\n- Concentrated benefits: users of financial reports (creditors, sophisticated investors, regulators) benefit from clearer treatment of misstatements and more explicit auditor conclusions (paras 11–12; A26–A28).\n- Diffuse costs: many audited entities and management teams absorb additional audit and remediation costs (paras 6–9; A9, A30).\n\n**Practical behavioural changes required**\n\n- Auditors must track and accumulate non‑trivial misstatements, escalate and communicate them, document thresholds and conclusions, and obtain written representations (paras 5, 8–15; A2–A30).\n- Management must be prepared to investigate auditor queries, correct misstatements when asked, or provide reasons in writing if they decline (paras 8–9, 14; A10–A13, A29).\n\n**Key cross‑references that affect how the standard is applied**\n\n- ASA 320 (materiality), ASA 700 (forming the audit opinion), ASA 240 (fraud), ASA 530 (sampling/projection), ASA 260 (communication with governance), ASA 200/101 (overall auditor objectives and preamble) — these influence thresholds, procedures and conclusions under ASA 450 (see Scope and Authority statements; paras 1, Application material)."}},"importantCases":[],"_links":{"self":"/api/acts/asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009","history":"/api/acts/asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009/history","analysis":"/api/acts/asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009/analysis","conflicts":"/api/acts/asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009/conflicts","importantCases":"/api/acts/asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009/important-cases","documents":"/api/acts/asa-450-evaluation-of-misstatements-identified-during-the-audit-october-2009/documents"}}