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ABC Co materiality level is $100000
Below is the effects of unadjusted misstatements:
1) revenue will be increased by $150000 (above materiality)
2) expenses will be increased by $120000 (above materiality)Net effect to p&l is profit increased by $30000 (below materiality)
if the above misstatements remain unadjusted, would it affect the auditor’s opinion?
Thanks
I suggest it should. The auditor cannot give an opinion “… the accompanying financial statements present fairly/give a true and fair view, in ALL material respects, …” if there are unadjusted individually material errors.
Also consider that although net profit is not materially misstated, there must be “other sides” to each of these misstatements – e.g. a corresponding receivable for 1) and a corresponding payable/liability for 2). Any ratios used in the interpretation of financial statements that use revenue, expenses, receivables, payables/liabilities would potentially be distorted (GP%, asset turnover, inventory turnover (if the expense is a cost of sale), receivables days (collection period), payables days, etc).
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