ACCA Audit and Assurance (F8) Practice Exam

If a material misstatement is detected, what is the auditor's immediate procedure?

1. Document the findings and move on

2. Report to the appropriate level of management and ask for correction

3. Inform the public about the misstatement

4. Adjust the financial statements personally

The correct answer is: Report to the appropriate level of management and ask for correction

When a material misstatement is detected, the auditor's immediate responsibility is to report the issue to the appropriate level of management and ask for a correction. This procedure is crucial because the primary objective of an audit is to ensure that the financial statements present a true and fair view of the company's financial position. By reporting the misstatement, the auditor allows management the opportunity to address and remedy the issue before the financial statements are finalized. This collaborative approach not only helps maintain the integrity of the financial reporting process but also fosters transparency and accountability within the organization. Taking action at this stage is significant, as it demonstrates the auditor's commitment to ethical standards and professionalism by giving management the chance to rectify the misstatement. If the situation is left unaddressed, it could lead to significant repercussions for the company, including the risk of misleading stakeholders and potential legal liabilities. In contrast, merely documenting the findings without further action would fail to address the issue, while informing the public prematurely could undermine trust in the company and violate confidentiality principles. Adjusting the financial statements personally isn't appropriate for an auditor, as it compromises independence and objectivity, which are fundamental to the audit profession.