ASA 700 - Forming an Opinion and Reporting on a Financial Report - December 2015
Qualitative Aspects of the Entity’s AccoQualitative Aspects of the Entity’s Accounting Practices (Ref: Para. 12)
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Qualitative Aspects of the Entity’s Accounting Practices (Ref: Para. 12)
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Management makes a number of judgements about the amounts and disclosures in the financial report.
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ASA 260 contains a discussion of the qualitative aspects of accounting practices.[20] In considering the qualitative aspects of the entity’s accounting practices, the auditor may become aware of possible bias in management’s judgements. The auditor may conclude that the cumulative effect of a lack of neutrality, together with the effect of uncorrected misstatements, causes the financial report as a whole to be materially misstated. Indicators of a lack of neutrality that may affect the auditor’s evaluation of whether the financial report as a whole is materially misstated include the following:
- The selective correction of misstatements brought to management’s attention during the audit (e.g., correcting misstatements with the effect of increasing reported earnings, but not correcting misstatements that have the effect of decreasing reported earnings).
- Possible management bias in the making of accounting estimates.
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ASA 540 addresses possible management bias in making accounting estimates.[21] Indicators of possible management bias do not constitute misstatements for purposes of drawing conclusions on the reasonableness of individual accounting estimates. They may, however, affect the auditor’s evaluation of whether the financial report as a whole is free from material misstatement.