Question

You find out that an audit missed catching a material misstatement in the financial statements. You are asked your opinion about this and presented with the following questions.

1) How could this have happened in an audit?

2) Is this something that is just expected during audits?

3) What steps could have been taken by the auditors to mitigate the possibility of this happening?

Answer 1

1) Auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a function of risk of material misstatements and detection risk, i.e the substantive procedures performed by auditor fails to detect material misstatements.

2) Yes, it is something that is expected during an audit.But auditor can reduce this risk by perfoming more and more stronger substantive pocedures.

3) Auditor could have controlled detection risk to reduce audit risk to an acceptable low level by applying additional audit pocedures and obtaining more sufficient appropiate audit evidences and by changing the natue,timing and extent of the substantive audit procedures.