What are the three categories of uncorrected misstatements?
What will be an ideal response?
For evaluation, uncorrected misstatements can be classified into three main categories: known, likely, and
further possible. Known misstatements are those actually identified during the audit, so there is no
uncertainty about their existence. Likely misstatements are those that probably exist, based on audit
evidence examined; for example, the projected effect of misstatements identified in representative samples
or management accounting estimates or of policy choices that the auditor considers unreasonable. Further
possible misstatements are those that could exist over and above the total of known and likely
misstatements because of the fundamental limitations of auditing; for example, sampling and
non-sampling risks, forecasting uncertainties in accounting estimates, and minimum review accounts
(those subjected to minimal verification as they have a very low assessed risk of misstatement). The
amount of possible misstatement cannot be precisely quantified, but the auditor must exercise professional
judgment in addressing this possibility, particularly when the total approaches materiality, or when
misstatements are due to general control breakdowns rather than isolated instances.
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