What does material misstatement mean on the CPA exam?
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Material misstatement. An error or omission in the financial statements large enough, or of a kind, that it could change the decision of a reasonable user relying on them.
Defined against AU-C 320.02.
Which CPA exam sections use material misstatement?
Material misstatement appears in 2 CPA exam sections: AUD, ISC.
Other terms defined against AU-C 320
- overall materiality: Materiality for the statements as a whole, set during planning.
Related terms
- material weakness: A deficiency, or combination of deficiencies, in internal control over financial reporting where there is a reasonable possibility that a material misstatement will not be prevented, or detected and corrected, on a timely basis.
- tolerable misstatement: A monetary amount set so that the risk of the actual misstatement in the population exceeding it is acceptably low.
- risk assessment procedures: The audit procedures designed and performed to identify and assess the risks of material misstatement at the financial statement and assertion levels.
- risk of material misstatement: The risk that the statements are materially misstated before the audit begins.
- assessed risk: The auditor's judgment about the risk of material misstatement at the assertion level, combining inherent and control risk.
- control risk: The risk that the entity's own controls will not prevent, or detect and correct, a material misstatement on a timely basis.