Material misstatement

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in AAT student discussion
Hello,<BR>I have just completed the audit devolved - could anyone tell me what is meant by material misstatement?<BR>Thanks guys

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Material misstatement

    Hi<BR><BR>Generally a misstatement that would result in the accounts not giving a true and fair view.<BR><BR>Neil
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Material misstatement

    But what is 'true and fair'?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Material misstatement

    A true and fair view is about 'The Statement of Principals'. <BR><BR>The FRS (Financial Reporting Statements) govern on how accounts should be put together and how they are shown in the P&L and Bal Sheet. There are also other organisations like SSAP and IAS that also do this. They are the 'bedrock' of the preparation of accounting statements. If we all presented our accounts differently then to some we would show them in a good light but for others (eg Tax Man) we would want to show them in a bad light so not to pay as much tax. The FRS prevents this happening.<BR><BR>The FRS's hava a 'Statement of Principals' which lists concepts of how accounts should be treated other concepts are included in FRS 18 Accountng Policies.<BR><BR>For example the acount concept of 'accruals' states that expenses and revenues are matched so that they concern the same goods or services and the same period. P&L shows the amount of the expenses incurred and the amount of income that should have been received. You would record the expense and the income into the same period even if the customer paid in a different financial year. <BR><BR>This assists a True and Fair view of the accounts which auditors must agree with before the accounts are presented/registered (as you probably already know).<BR><BR>Hope this helps.

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