ISA (NZ) 450

Evaluation of Misstatements Identified during the Audit

Mandatory Date:
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Statement of Authority

 

INTERNATIONAL STANDARD ON AUDITING (NEW ZEALAND) 450

Evaluation of Misstatements Identified during the Audit (ISA (NZ) 450) Issued July 2011

This compilation was prepared in June 2021 and incorporates amendments up to and including June 2020.

Effective for audits of historical financial statements for periods beginning on or after 1 September, 2011.

This Standard was issued by the External Reporting Board pursuant to section 24(1)(b) of the Financial Reporting Act 1993. This Standard is a disallowable instrument for the purposes of the Legislation Act 2012.

 

Copyright

© External Reporting Board (“XRB”) 2011

This XRB standard contains copyright material and reproduces, with the permission of the International Federation of Accountants (IFAC), parts of the corresponding international standard issued by the International Auditing and Assurance Standards Board (“IAASB”), and published by IFAC. Reproduction within New Zealand in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgement of the source.

Requests and enquiries concerning reproduction and rights for commercial purposes within New Zealand should be addressed to the Chief Executive, External Reporting Board at the following email address: enquiries@xrb.govt.nz

All existing rights (including copyrights) in this material outside of New Zealand are reserved by IFAC, with the exception of the right to reproduce for the purposes of personal use or other fair dealing. Further information can be obtained from IFAC at www.ifac.org or by writing to permissions@ifac.org

ISBN 978-1-927174-13-5

 

How to Read this Standard

International Standard on Auditing (New Zealand) (ISA (NZ)) 450, “Evaluation of Misstatements Identified During the Audit” should be read in conjunction with ISA (NZ) 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing (New Zealand).”

Table of pronouncements – ISA (NZ) 450 Evaluation of Misstatements Identified during the Audit

This table lists the pronouncements establishing and amending ISA (NZ) 450.

Pronouncements

Date approved

Effective date

International Standard on Auditing (New Zealand) 450

July 2011

This ISA (NZ) is effective for audits of historical financial statements for periods beginning on or after 1 September, 2011.

Use of management and those charged with governance

December 2013

Effective for audits of financial statements for periods beginning on or after 1 July 2014

Amendments to the International Standards on Auditing (New Zealand) (ISAs (NZ)) on Auditing Financial Statement Disclosures

September 2015

Effective for audits of financial statements for periods ending on or after 15 December 2016.

Conforming amendments to ISAs (NZ) and other pronouncements (Auditor Reporting)

September 2015

Effective for audits of financial statements for periods ending on or after 15 December 2016.

Conforming Amendments to ISAs (NZ) and Other Pronouncements (NOCLAR)

October 2016

Effective for audits of financial statements for periods ending on or after 15 December 2017.

Conforming and Consequential Amendments to International Standards on Auditing (New Zealand) Arising from ISA (NZ) 315 (Revised 2019)

February 2020

Effective for audits of financial statements for periods beginning on or after 15 December 2021

 

Table of Amended Paragraphs in ISA (NZ) 450

Paragraph affected

How affected

By…[date]

Various

Amended

Use of management and those charged with governance [Dec 2013]

A3-A5, A6, A10, A17, A18, 

4, A1, A2, A16, A22

Inserted

Amended

Amendments to the International Standards on Auditing (New Zealand) (ISAs (NZ)) on Auditing Financial Statement Disclosures [Sept 2015]

A21

Amended

Conforming amendments to ISAs (NZ) and other pronouncements (Auditor Reporting) [Sept 2015]

8, A11

Amended

Conforming Amendments to ISAs (NZ) and Other Pronouncements (NOCLAR) [Oct 2016]

A28

Footnotes 4, 8, 11, 16, 18, 19

Amended

Conforming and Consequential Amendments to International Standards on Auditing (New Zealand) Arising from ISA (NZ) 315 (Revised 2019)

Scope of this ISA (NZ)

1. This International Standard on Auditing (New Zealand) (ISA (NZ)) deals with the auditor’s responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements. ISA (NZ) 700 deals with the auditor’s responsibility, in forming an opinion on the financial statements, to conclude whether reasonable assurance has been obtained about whether the financial statements as a whole are free from material misstatement. The auditor’s conclusion required by ISA (NZ) 700 takes into account the auditor’s evaluation of uncorrected misstatements, if any, on the financial statements, in accordance with this ISA (NZ).1 ISA (NZ) 3202 deals with the auditor’s responsibility to apply the concept of materiality appropriately in planning and performing an audit of financial statements.

Effective Date

2. This ISA (NZ) is effective for audits of financial statements for periods beginning on or after 1 September, 2011.

1 ISA (NZ) 700, “Forming an Opinion and Reporting on Financial Statements,” paragraphs 10-11.

2 ISA (NZ) 320, “Materiality in Planning and Performing an Audit.”

3. The objective of the auditor is to evaluate:

  1. The effect of identified misstatements on the audit; and

  2. The effect of uncorrected misstatements, if any, on the financial statements.

4. For purposes of the ISAs (NZ), the following terms have the meanings attributed below:

  1. Misstatement – A difference between the reported amount, classification, presentation, or disclosure of a financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. (Ref: Para. A1)When the auditor expresses an opinion on whether the financial statements give a true and fair view or are presented fairly, in all material respects, misstatements also include those adjustments of amounts, classifications,  presentation, or disclosures that, in the auditor’s judgement, are necessary for the financial statements to give a true and fair view of or present fairly, the matters to which they relate, in all material respects.

  2. Uncorrected misstatements – Misstatements that the auditor has accumulated during the audit and that have not been corrected.

Accumulation of Identified Misstatements

5. The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial. (Ref: Para. A2-A6)

Consideration of Identified Misstatements as the Audit Progresses

6. The auditor shall determine whether the overall audit strategy and audit plan need to be revised if:

  1. The nature of identified misstatements and the circumstances of their occurrence indicate that other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material; or (Ref: Para. A7)

  2. The aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ISA (NZ) 320. (Ref: Para. A8)

7. If, at the auditor’s request, management has examined a class of transactions, account balance or disclosure and corrected misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain. (Ref: Para. A9)

Communication and Correction of Misstatements

8. The auditor shall communicate, unless prohibited by law or regulation, on a timely basis all misstatements accumulated during the audit with the appropriate level of management.3 The auditor shall request management to correct those misstatements. (Ref: Para. A10-A12)

9. If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an understanding of management’s reasons for not making the corrections and shall take that understanding into account when evaluating whether the financial statements as a whole are free from material misstatement. (Ref: Para. A13)

Evaluating the Effect of Uncorrected Misstatements

10. Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality determined in accordance with ISA (NZ) 320 to confirm whether it remains appropriate in the context of the entity’s actual financial results. (Ref: Para. A14-A15)

11. The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, the auditor shall consider:

  1. The size and nature of the misstatements, both in relation to particular classes of transactions, account balances or disclosures and the financial statements as a whole, and the particular circumstances of their occurrence; and (Ref: Para. A16- A22, A24-A25)

  2. The effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole. (Ref: Para. A23)
Communication with Those Charged with Governance

12. The auditor shall communicate with those charged with governance uncorrected misstatements and the effect that they, individually or in aggregate, may have on the opinion in the auditor’s report, unless prohibited by law or regulation.4 The auditor’s communication shall identify material uncorrected misstatements individually. The auditor shall request that uncorrected misstatements be corrected. (Ref: Para. A26-A28)

13. The auditor shall also communicate with those charged with governance the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole.

Written Representation

14. [Amended by the NZAuASB.]

NZ14.1 The auditor shall request a written representation from those charged with governance whether they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. A summary of such items shall be included in or attached to the written representation. (Ref: Para. A29)

Documentation

15. The audit shall include in the audit documentation:5 (Ref: Para. A30)

  1. The amount below which misstatements would be regarded as clearly trivial (paragraph 5);

  2. All misstatements accumulated during the audit and whether they have been corrected (paragraphs 5, 8 and 12); and

  3. The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in aggregate, and the basis for that conclusion (paragraph 11).

3ISA (NZ) 260 (Revised), Communication with Those Charged with Governance, paragraph 7

4 See footnote 5.

5 ISA (NZ) 230, “Audit Documentation,” paragraphs 8-11, and paragraph A6.

Definition of Misstatements (Ref: Para. 4(a))

A1. Misstatements may result from:

  1. An inaccuracy in gathering or processing data from which the financial statements are prepared;

  2. An omission of an amount or disclosure, including inadequate or incomplete disclosures, and those disclosures required to meet disclosure objectives of certain financial reporting frameworks as applicable6;

  3. An incorrect accounting estimate arising from overlooking, or clear misinterpretation of, facts;

  4. Judgements of management concerning accounting estimates that the auditor considers unreasonable or the selection and application of accounting policies that the auditor considers inappropriate;

  5. An inappropriate classification, aggregation or disaggregation, of information; and

  6. For financial statements prepared in accordance with a fair presentation framework, the omission of a disclosure necessary for the financial statements to achieve fair presentation beyond disclosures specifically required by the framework.7

Examples of misstatements arising from fraud are provided in ISA (NZ) 240.8

Accumulation of Identified Misstatements (Ref: Para. 5)

“Clearly Trivial”

A2. Paragraph 5 of this ISA (NZ) requires the auditor to accumulate misstatements identified during the audit other than those that are clearly trivial. “Clearly trivial” is not another expression for “not material.” Misstatements that are clearly trivial will be of a wholly different (smaller) order of magnitude, or of a wholly different nature than those that would be determined to be material, and will be misstatements that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances. When there is any uncertainty about whether one or more items are clearly trivial, the misstatement is considered not to be clearly trivial.

Misstatements in Individual Statements

A3. The auditor may designate an amount below which misstatements of amounts in the individual statements would be clearly trivial, and would not need to be accumulated because the auditor expects that the accumulation of such amounts clearly would not have a material effect on the financial statements. However, misstatements of amounts that are above the designated amount are accumulated as required by paragraph 5 of this ISA (NZ). In addition, misstatements relating to amounts may not be clearly trivial when judged on criteria of nature or circumstances, and, if not, are accumulated as required by paragraph 5 of this ISA (NZ).

Misstatements in Disclosures

A4. Misstatements in disclosures may also be clearly trivial whether taken individually or in aggregate, and whether judged by any criteria of size, nature or circumstances. Misstatements in disclosures that are not clearly trivial are also accumulated to assist the auditor in evaluating the effect of such misstatements on the relevant disclosures and the financial statements as a whole. Paragraph A17 of this ISA (NZ) provides examples of where misstatements in qualitative disclosures may be material.

Accumulation of Misstatements

A5. Misstatements by nature or circumstances, accumulated as described in paragraphs A3‒ A4, cannot be added together as is possible in the case of misstatements of amounts. Nevertheless, the auditor is required by paragraph 11 of this ISA (NZ) to evaluate those misstatements individually and in aggregate (i.e., collectively with other misstatements) to determine whether they are material.

A6. To assist the auditor in evaluating the effect of misstatements accumulated during the audit and in communicating misstatements to management and those charged with governance, it may be useful to distinguish between factual misstatements, judgemental misstatements and projected misstatements.

  • Factual misstatements are misstatements about which there is no doubt.

  • Judgemental misstatements are differences arising from the judgements of management including those concerning recognition, measurement, presentation and disclosure in the financial statements (including the selection or application of accounting policies) that the auditor considers unreasonable or inappropriate.

  • Projected misstatements are the auditor’s best estimate of misstatements in populations, involving the projection of misstatements identified in audit samples to the entire populations from which the samples were drawn. Guidance on the determination of projected misstatements and evaluation of the results is set out in ISA (NZ) 530.9

Consideration of Identified Misstatements as the Audit Progresses (Ref: Para. 6-7)

A7. A misstatement may not be an isolated occurrence. Evidence that other misstatements may exist include, for example, where the auditor identifies that a misstatement arose from a breakdown in internal control or from inappropriate assumptions or valuation methods that have been widely applied by the entity.

A8. If the aggregate of misstatements accumulated during the audit approaches materiality determined in accordance with ISA (NZ) 320, there may be a greater than acceptably low level of risk that possible undetected misstatements, when taken with the aggregate of misstatements accumulated during the audit, could exceed materiality. Undetected misstatements could exist because of the presence of sampling risk and non-sampling risk.10

A9. The auditor may request management to examine a class of transactions, account balance or disclosure in order for management to understand the cause of a misstatement identified by the auditor, perform procedures to determine the amount of the actual misstatement in the class of transactions, account balance or disclosure, and to make appropriate adjustments to the financial statements. Such a request may be made, for example, based on the auditor’s projection of misstatements identified in an audit sample to the entire population from which it was drawn.

Communication and Correction of Misstatements (Ref: Para. 8-9)

A10. Timely communication of misstatements to the appropriate level of management is important as it enables management to evaluate whether the classes of transactions, account balances and disclosures are misstated, inform the auditor if it disagrees, and take action as necessary. Ordinarily, the appropriate level of management is the one that has responsibility and authority to evaluate the misstatements and to take the necessary action.

A11. In some jurisdictions, law or regulation may restrict the auditor’s communication of certain misstatements to management, or others, within the entity. Laws or regulations may specifically prohibit a communication, or other action, that might prejudice an investigation by an appropriate authority into an actual, or suspected, illegal act, including alerting the entity, for example, when the auditor is required to report identified or suspected non-compliance with law or regulation to an appropriate authority pursuant to anti-money laundering legislation. In these circumstances, the issues considered by the auditor may be complex and the auditor may consider it appropriate to obtain legal advice.

A12. The correction by management of all misstatements, including those communicated by the auditor, enables management to maintain accurate accounting books and records and reduces the risks of material misstatement of future financial statements because of the cumulative effect of immaterial uncorrected misstatements related to prior periods.

A13. ISA (NZ) 700 (Revised) requires the auditor to evaluate whether the financial statements are prepared and presented, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation includes consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible management bias,11 which may be affected by the auditor’s understanding of management’s reasons for not making the corrections.

Evaluating the Effect of Uncorrected Misstatements (Ref: Para. 10-11)

A14. The auditor’s determination of materiality in accordance with ISA (NZ) 320 is often based on estimates of the entity’s financial results, because the actual financial results may not yet be known. Therefore, prior to the auditor’s evaluation of the effect of uncorrected misstatements, it may be necessary to revise materiality determined in accordance with ISA (NZ) 320 based on the actual financial results.

A15. ISA (NZ) 320 explains that, as the audit progresses, materiality for the financial statements as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) is revised in the event of the auditor becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially.12 Thus, any significant revision is likely to have been made before the auditor evaluates the effect of uncorrected misstatements. However, if the auditor’s reassessment of materiality determined in accordance with ISA (NZ) 320 (see paragraph 10 of this ISA (NZ)) gives rise to a lower amount (or amounts), then performance materiality and the appropriateness of the nature, timing and extent of the further audit procedures are reconsidered so as to obtain sufficient appropriate audit evidence on which to base the audit opinion.

A16. Each individual misstatement of an amount is considered to evaluate its effect on the relevant classes of transactions, account balances or disclosures, including whether the materiality level for that particular class of transactions, account balance or disclosure, if any, has been exceeded.

A17. In addition, each individual misstatement of a qualitative disclosure is considered to evaluate its effect on the relevant disclosure(s), as well as its overall effect on the financial statements as a whole. The determination of whether a misstatement(s) in a qualitative disclosure is material, in the context of the applicable financial reporting framework and the specific circumstances of the entity, is a matter that involves the exercise of professional judgement. Examples where such misstatements may be material include:

  • Inaccurate or incomplete descriptions of information about the objectives, policies and processes for managing capital for entities with insurance and banking activities.

  • The omission of information about the events or circumstances that have led to an impairment loss (e.g., a significant long-term decline in the demand for a metal or commodity) in an entity with mining operations.

  • The incorrect description of an accounting policy relating to a significant item in the statement of financial position, the statement of comprehensive income, the statement of changes in equity or the statement of cash flows.

  • The inadequate description of the sensitivity of an exchange rate in an entity that undertakes international trading activities.

A18. In determining whether uncorrected misstatements by nature are material as required by paragraph 11 of this ISA (NZ), the auditor considers uncorrected misstatements in amounts and disclosures. Such misstatements may be considered material either individually, or when taken in combination with other misstatements. For example, depending on the misstatements identified in disclosures, the auditor may consider whether:

  1. Identified errors are persistent or pervasive; or

  2. A number of identified misstatements are relevant to the same matter, and considered collectively may affect the users’ understanding of that matter.

This consideration of accumulated misstatements is also helpful when evaluating the financial statements in accordance with paragraph 13(d) of ISA (NZ) 700 (Revised),13 which requires the auditor to consider whether the overall presentation of the financial statements has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed.

A19. If an individual misstatement is judged to be material, it is unlikely that it can be offset by other misstatements. For example, if revenue has been materially overstated, the financial statements as a whole will be materially misstated, even if the effect of the misstatement on earnings is completely offset by an equivalent overstatement of expenses. It may be appropriate to offset misstatements within the same account balance or class of transactions; however, the risk that further undetected misstatements may exist is considered before concluding that offsetting even immaterial misstatements is appropriate.14

A20. Determining whether a classification misstatement is material involves the evaluation of qualitative considerations, such as the effect of the classification misstatement on debt or other contractual covenants, the effect on individual line items or sub-totals, or the effect on key ratios. There may be circumstances where the auditor concludes that a classification misstatement is not material in the context of the financial statements as a whole, even though it may exceed the materiality level or levels applied in evaluating other misstatements. For example, a misclassification between balance sheet line items may not be considered material in the context of the financial statements as a whole when the amount of the misclassification is small in relation to the size of the related balance sheet line items and the misclassification does not affect the income statement or any key ratios.

A21. The circumstances related to some misstatements may cause the auditor to evaluate them as material, individually or when considered together with other misstatements accumulated during the audit, even if they are lower than materiality for the financial statements as a whole. Circumstances that may affect the evaluation include the extent to which the misstatement:

  • Affects compliance with regulatory requirements;

  • Affects compliance with debt covenants or other contractual requirements;

  • Relates to the incorrect selection or application of an accounting policy that has an immaterial effect on the current period’s financial statements but is likely to have a material effect on future periods’ financial statements;

  • Masks a change in earnings or other trends, especially in the context of general economic and industry conditions;

  • Affects ratios used to evaluate the entity’s financial position, results of operations or cash flows;

  • Affects segment information presented in the financial statements (for example, the significance of the matter to a segment or other portion of the entity’s business that has been identified as playing a significant role in the entity’s operations or profitability);

  • Has the effect of increasing management compensation, for example, by ensuring that the requirements for the award of bonuses or other incentives are satisfied;

  • Is significant having regard to the auditor’s understanding of known previous communications to users, for example, in relation to forecast earnings;

  • Relates to items involving particular parties (for example, whether external parties to the transaction are related to members of the entity’s management);

  • Is an omission of information not specifically required by the applicable financial reporting framework but which, in the judgement of the auditor, is important to the users’ understanding of the financial position, financial performance or cash flows of the entity; or

  • Affects other information to be included in the entity’s annual report (for example, information to be included in a “Management Discussion and Analysis” or an “Operating and Financial Review”) that may reasonably be expected to influence the economic decisions of the users of the financial statements. ISA (NZ) 720 (Revised)15 deals with the auditor’s responsibilities relating to other information.

These circumstances are only examples; not all are likely to be present in all audits nor is the list necessarily complete. The existence of any circumstances such as these does not necessarily lead to a conclusion that the misstatement is material.

A22. ISA (NZ) 24016 explains how the implications of a misstatement that is, or may be, the result of fraud ought to be considered in relation to other aspects of the audit, even if the size of the misstatement is not material in relation to the financial statements. Depending on the circumstances, misstatements in disclosures could also be indicative of fraud, and, for example, may arise from:

  • Misleading disclosures that have resulted from bias in management’s judgements; or

  • Extensive duplicative or uninformative disclosures that are intended to obscure proper understanding of matters in the financial statements.

When considering the implications of misstatements in transactions, account balances and disclosures, the auditor exercises professional scepticism in accordance with ISA (NZ) 200. 17

A23. The cumulative effect of immaterial uncorrected misstatements related to prior periods may have a material effect on the current period’s financial statements. There are different acceptable approaches to the auditor’s evaluation of such uncorrected misstatements on the current period’s financial statements. Using the same evaluation approach provides consistency from period to period.

Considerations Specific to Public Sector Entities

A24. In the case of an audit of a public sector entity, the evaluation whether a misstatement is material may also be affected by the auditor’s responsibilities established by law, regulation or other authority to report specific matters, including, for example, fraud.

A25. Furthermore, issues such as public interest, accountability, probity and ensuring effective legislative oversight, in particular, may affect the assessment whether an item is material by virtue of its nature. This is particularly so for items that relate to compliance with law, regulation or other authority.

Communication with Those Charged with Governance (Ref: Para. 12)

A26. If uncorrected misstatements have been communicated with person(s) with management responsibilities, and those person(s) also have governance responsibilities, they need not be communicated again with those same person(s) in their governance role. The auditor nonetheless has to be satisfied that communication with person(s) with management responsibilities adequately informs all of those with whom the auditor would otherwise communicate in their governance capacity.18

A27. Where there is a large number of individual immaterial uncorrected misstatements, the auditor may communicate the number and overall monetary effect of the uncorrected misstatements, rather than the details of each individual uncorrected misstatement.

A28. ISA (NZ) 260 requires the auditor to communicate with those charged with governance the written representations the auditor is requesting (see paragraph 14 of this ISA (NZ)).19 The auditor may discuss with those charged with governance the reasons for, and the implications of, a failure to correct misstatements, having regard to the size and nature of the misstatement judged in the surrounding circumstances, and possible implications in relation to future financial statements.

Written Representation (Ref: Para. 14)

A29. Because the preparation of the financial statements requires management and, where appropriate, those charged with governance to adjust the financial statements to correct material misstatements, the auditor is required to request them to provide a written representation about uncorrected misstatements. In some circumstances, management and, where appropriate, those charged with governance may not believe that certain uncorrected misstatements are misstatements. For that reason, they may want to add to their written representation words such as: “We do not agree that items … and … constitute misstatements because [description of reasons].” Obtaining this representation does not, however, relieve the auditor of the need to form a conclusion on the effect of uncorrected misstatements.

Documentation (Ref: Para. 15)

A30. The auditor’s documentation of uncorrected misstatements may take into account:

  1. The consideration of the aggregate effect of uncorrected misstatements;

  2. The evaluation of whether the materiality level or levels for particular classes of transactions, account balances or disclosures, if any, have been exceeded; and

  3. The evaluation of the effect of uncorrected misstatements on key ratios or trends, and compliance with legal, regulatory and contractual requirements (for example, debt covenants).

6For example, New Zealand equivalent to International Financial Reporting Standard (NZ IFRS) 7, Financial Instruments: Disclosures, paragraph 42H states that “an entity shall disclose any additional information that it considers necessary to meet the disclosure objectives in paragraph…”

7For example, NZ IFRS requires an entity to provide additional disclosures when compliance with the specific requirements in NZ IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance (New Zealand equivalent to International Accounting Standard 1, Presentation of Financial Statements, paragraph 17(c))

8ISA (NZ) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, paragraphs A1-A6.

9 ISA (NZ) 530, “Audit Sampling,” paragraphs 14-15.

10 ISA (NZ) 530, paragraphs 5(c)-(d).

13ISA (NZ) 700 (Revised), Forming an Opinion and Reporting on Financial Statements.

14 The identification of a number of immaterial misstatements within the same account balance or class of transactions may require the auditor to reassess the risk of material misstatement for that account balance or class of transactions.

15 ISA (NZ) 720 (Revised), “The Auditor’s Responsibilities Relating to Other Information.”

16 ISA (NZ) 240, paragraph 35.

17 ISA (NZ) 200, paragraph 15.

18 ISA (NZ) 260, paragraph 13.

19 ISA (NZ) 260, paragraph 16(c)(ii).

This conformity statement accompanies but is not part of ISA (NZ) 450.

This International Standard on Auditing (New Zealand) (ISA (NZ)) conforms to International Standard on Auditing ISA 450 Evaluation of Misstatements Identified during the Audit, issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board of the International Federation of Accountants (IFAC).

Paragraphs that have been added to this ISA (NZ) (and do not appear in the text of the equivalent ISA) are identified with the prefix “NZ”.

References to “management” and “those charged with governance” have been amended in the ISAs (NZ) because the statutory responsibility for the preparation of the financial statements rests with those charged with governance. The ISAs require the auditor to obtain written representation from management. The ISAs (NZ) require written representations from those charged with governance. Paragraphs where references to “management” have been amended have been labelled as NZ paragraphs.

This ISA (NZ) incorporates terminology and definitions used in New Zealand. Compliance with this ISA (NZ) enables compliance with ISA 450.

Comparison with Australian Auditing Standards

In Australia the Australian Auditing and Assurance Standards Board (AUASB) has issued Australian Auditing Standard ASA 450 Evaluation of Misstatements Identified during the Audit.

ASA 450 conforms to ISA 450.