Annual Audit Manual
COPYRIGHT NOTICE — This document is intended for internal use. It cannot be distributed to or reproduced by third parties without prior written permission from the Copyright Coordinator for the Office of the Auditor General of Canada. This includes email, fax, mail and hand delivery, or use of any other method of distribution or reproduction. CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright. Reproduced, with permission, from the CPA Canada Handbook, The Chartered Professional Accountants of Canada, Toronto, Canada.
8035 Material misstatements of the other information
Jun-2020
In This Section
Misstatement in the other information obtained prior to the date of the auditor’s report
Misstatement in the other information obtained after the date of the auditor’s report
Overview
This topic explains:
- Misstatement in the other information obtained prior to the date of the auditor’s report
- Misstatement in the other information obtained after the date of the auditor’s report
CAS Requirement
If the auditor concludes that a material misstatement of the other information exists, the auditor shall request management to correct the other information. If management (CAS 720.17):
(a) Agrees to make the correction, the auditor shall determine that the correction has been made; or
(b) Refuses to make the correction, the auditor shall communicate the matter with those charged with governance and request that the correction be made.
If the auditor concludes that a material misstatement exists in other information obtained prior to the date of the auditor’s report, and the other information is not corrected after communicating with those charged with governance, the auditor shall take appropriate action, including (CAS 720.18):
(a) Considering the implications for the auditor’s report and communicating with those charged with governance about how the auditor plans to address the material misstatement in the auditor’s report (see paragraph 22(e)(ii)); or
(b) Withdrawing from the engagement, where withdrawal is possible under applicable law or regulation.
CAS Guidance
The actions the auditor takes if the other information is not corrected after communicating with those charged with governance are a matter of the auditor’s professional judgment. The auditor may take into account whether the rationale given by management and those charged with governance for not making the correction raises doubt about the integrity or honesty of management or those charged with governance, such as when the auditor suspects an intention to mislead. The auditor may also consider it appropriate to seek legal advice. In some cases, the auditor may be required by law, regulation or other professional standards to communicate the matter to a regulator or relevant professional body (CAS 720.A44).
Reporting implications
In rare circumstances, a disclaimer of opinion on the financial statements may be appropriate when the refusal to correct the material misstatement of the other information casts such doubt on the integrity of management and those charged with governance as to call into question the reliability of audit evidence in general (CAS 720.A45).
Withdrawal from the Engagement
Withdrawal from the engagement, where withdrawal is possible under applicable law or regulation, may be appropriate when the circumstances surrounding the refusal to correct the material misstatement of the other information cast such doubt on the integrity of management and those charged with governance as to call into question the reliability of representations obtained from them during the audit (CAS 720.A46).
Considerations specific to public sector entities
In the public sector, withdrawal from the engagement may not be possible. In such cases, the auditor may issue a report to the legislature providing details of the matter or may take other appropriate actions (CAS 720.A47).
OAG Policy
Consult with Audit Services in accordance with OAG Audit 3081 as appropriate, if revision of the other information is necessary and the entity refuses to make the revision. [Jun-2020]
Consult with Audit Services and Legal Services in accordance with OAG Audit 3081 as appropriate, if the audit team has a material disagreement with those charged with governance because our report is to be included in a document that contains materially misstated information. [Jun-2020]
OAG Guidance
When the entity corrects a material misstatement, check that the correction was appropriately made and document this in the working papers. When we request the entity to make a correction of a material misstatement in other information and the other information is not corrected, consult in accordance with the policy above. We then consider implications for the auditor’s report and communicate with management and those charged with governance, as appropriate.
CAS Requirement
If the auditor concludes that a material misstatement exists in other information obtained after the date of the auditor’s report, the auditor shall (CAS 720.19):
(a) If the other information is corrected, perform the procedures necessary in the circumstances; or
(b) If the other information is not corrected after communicating with those charged with governance, take appropriate action considering the auditor’s legal rights and obligations, to seek to have the uncorrected material misstatement appropriately brought to the attention of users for whom the auditor’s report is prepared.
CAS Guidance
If the auditor concludes that a material misstatement exists in other information obtained after the date of the auditor’s report, and such a material misstatement has been corrected, the auditor’s procedures necessary in the circumstances include determining that the correction has been made (in accordance with paragraph 17(a)) and may include reviewing the steps taken by management to communicate with those in receipt of the other information, if previously issued, to inform them of the revision (CAS 720.A48).
If those charged with governance do not agree to revise the other information, taking appropriate action to seek to have the uncorrected misstatement appropriately brought to the attention of users for whom the auditor’s report is prepared requires the exercise of professional judgment, and may be affected by relevant law or regulation in the jurisdiction. Accordingly, the auditor may consider it appropriate to seek legal advice about the auditor’s legal rights and obligations (CAS 720.A49).
When a material misstatement of the other information remains uncorrected, appropriate actions that the auditor may take to seek to have the uncorrected material misstatement appropriately brought to the attention of users for whom the auditor’s report is prepared, when permitted by law or regulation, include, for example (CAS 720.A50):
-
Providing a new or amended auditor’s report to management including a modified section in accordance with paragraph 22, and requesting management to provide this new or amended auditor’s report to users for whom the auditor’s report is prepared. In doing so, the auditor may need to consider the effect, if any, on the date of the new or amended auditor’s report, in view of the requirements of the CASs or applicable law or regulation. The auditor may also review the steps taken by management to provide the new or amended auditor’s report to such users;
-
Bringing the material misstatement of the other information to the attention of the users for whom the auditor’s report is prepared (for example, by addressing the matter in a general meeting of shareholders);
-
Communicating with a regulator or relevant professional body about the uncorrected material misstatement; or
-
Considering the implications for engagement continuance (see also paragraph A46).
OAG Policy
Consult with Audit Services in accordance with OAG Audit 3081 as appropriate, if revision of the other information is necessary and the entity refuses to make the revision. [Jun-2020]
Consult with Audit Services and Legal Services in accordance with OAG Audit 3081 as appropriate, if the audit team has a material disagreement with those charged with governance because our report is to be included in a document that contains materially misstated information. [Jun-2020]
OAG Guidance
When a material misstatement has been corrected after the other information has been issued, check that the correction has been made and determine that management communicated with those in receipt of the uncorrected other information, to inform them of the correction. Also consider auditor’s reporting implications, taking into account any relevant regulations. When we identify a material misstatement in other information after the date of the auditor’s report, follow the guidance in OAG Audit 1173 on documenting matters arising after the date of the auditor’s report.
When we request the entity to make a correction of the other information and the other information is not corrected, consult in accordance with the policy above and consider any reporting implications, as appropriate.