ISA 450.5 requires the auditor to accumulate all misstatements identified during the audit, other than those that are clearly trivial. ISA 450.11 requires the auditor to determine whether uncorrected misstatements are material, individually or in aggregate, considering their nature, the specific circumstances of their occurrence, and their effect on the financial statements as a whole.
Materiality thresholds
Enter the materiality levels from your planning documentation. The clearly trivial threshold auto-suggests at 5% of performance materiality.
Misstatements
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ISA 450.5: The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial.
ISA 450.10: The auditor shall communicate on a timely basis all misstatements accumulated during the audit with the appropriate level of management.
ISA 450.11: The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate.
ISA 450: evaluating misstatements identified during the audit
ISA 450 governs how auditors handle misstatements found during the audit. Every misstatement above the clearly trivial threshold must be accumulated, communicated to management, and evaluated — both individually and in aggregate — before the auditor forms an opinion on the financial statements.
The three types of misstatement
Factual misstatements are errors where there is no doubt about the amount. For example, an invoice posted to the wrong period or a mathematical error in a schedule. The amount is certain.
Judgmental misstatements arise from management's judgments about accounting estimates or policy selections that the auditor considers unreasonable. For example, a provision that the auditor believes is understated based on available evidence.
Projected misstatements are the auditor's best estimate of misstatements in a population, extrapolated from sampling results. ISA 530 requires the auditor to project misstatements found in a sample to the entire population.
Setting the clearly trivial threshold
ISA 450.A2 permits the auditor to set a threshold below which misstatements are clearly inconsequential and do not need to be accumulated. Most firms set this at 3–5% of performance materiality. The threshold should be documented in the audit strategy and applied consistently throughout the engagement.
Evaluating the aggregate
The auditor must assess whether uncorrected misstatements, individually or when aggregated, are material to the financial statements as a whole. This is not a purely mechanical exercise — the auditor must consider the nature and cause of the misstatement, whether it affects compliance with regulatory requirements, and whether there is a pattern suggesting a systemic issue. If the aggregate approaches or exceeds performance materiality, additional procedures may be needed.