ACCA Audit and Assurance (F8) Practice Exam

What are the basic types of misstatement recognized in audit practice?

1. Judgemental, projected, and conditional

2. Factual, judgemental, and projected

3. Factual, contingent, and speculative

4. Factual, hypothetical, and judgemental

The correct answer is: Factual, judgemental, and projected

The correct classification of the basic types of misstatement recognized in audit practice consists of factual, judgmental, and projected misstatements. Factual misstatements are unequivocal errors that can be definitively identified. An example would be when an invoice amount is recorded incorrectly – this is a straightforward error with an exact value that can be verified against supporting documents. Judgmental misstatements arise from discrepancies in estimates made by management. These often involve subjective elements, such as assessing the collectibility of receivables or estimating the useful lives of fixed assets. The auditor must evaluate whether the assumptions used by management are reasonable and in accordance with applicable accounting standards. Projected misstatements refer to an estimate of the total amount of misstatements in a given population based on the misstatements found in a sample. This allows auditors to assess the overall effect of identified errors to determine their impact on financial statements. Together, these three types of misstatements help auditors categorize and address issues found during audits, ensuring that financial statements present a true and fair view of the organization’s financial position.