AXO Automobiles Limited, a leading manufacturer of electric vehicles, appoints WYZ & Co. Chartered Accountants as the statutory auditors for the…

SA 450 “Evaluation of Misstatements Identified During the Audit", 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. In the given situation, the auditor CA W should categorize the identified misstatements to evaluate their nature and impact in case of rent income of 4 lakhs not recorded due to oversight, expenses of 6 lakhs pertaining to F.Y. 2023-24 charged to Profit & Loss Account in F.Y. 2024-25, and for projected misstatement in the population sample test of warranty provisions of 10 lakhs. However, after insisting for rectification to reflect the correct financial results of the company, Management of AXO Automobiles Ltd. refused to make necessary corrections. Therefore, CA W shall evaluate the effect of these misstatements which are not corrected by management in following manner: Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality determined in accordance with SA 320 to confirm whether it remains appropriate in the context of the entity's actual financial results. The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, the auditor shall consider: 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; andThe 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. Communication: The auditor shall communicate with those charged with governance, in accordance with SA 260, 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. The auditor's communication shall identify material uncorrected misstatements individually. The auditor shall request that uncorrected misstatements be corrected. Further, 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.