Acca aaa s21 Notes

September 2021 to June 2022 exams
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4. Causes of material misstatements
Material misstatements can occur in two ways:
(1)
The amount is materially incorrect
(2)
The amount is materially correct but incorrectly classified, presented or disclosed (ie does not 
comply with the applicable financial reporting framework).
Auditors must therefore obtain audit evidence about the amount and also the treatment of the 
amount in the financial statements.
Remember, audit evidence is needed to support all the relevant assertions. So for a non-current asset, 
evidence is needed about existence, ownership (rights and obligations), accuracy valuation and 
allocation, completeness, classification, presentation. Transactions and events require evidence about 
occurrence, completeness, accuracy, cut-off, classification and presentation. IFRSs usually specify how 
amounts should be classified and presented. They can also determine cut-off (eg in revenue 
recognition), rights and obligations (eg right-of-use assets and lease liabilities) and valuation (eg 
subsequent measurement of property, plant and equipment).
5. Detection risk
Detection risk has two components:
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Sampling risk
This arises when audit procedures are applied to samples rather 
than entire populations. The auditor may conclude, based on a 
sample, that controls are more effective than they actually are or 
that there is no material misstatement when, in fact, there is. The 
auditor may then be doing too little work so that actual 
misstatements go undetected. Sampling risk can be reduced by 
examining larger samples.
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