How factual misstatements work
ISA 450.5 requires accumulating all misstatements except clearly trivial ones. Factual misstatements are the simplest type under ISA 450 .A1: an invoice posted to the wrong account, a receivable at the wrong currency rate. The correct figure exists and the recorded figure doesn't match.
ISA 450.8 requires communicating all accumulated misstatements to management and requesting correction.
Governed by
ISA 450 .A1
Key takeaways
- A factual misstatement is an error with a determinable correct answer, not a matter of judgment or estimation.
- Failing to accumulate factual misstatements below performance materiality risks an incomplete summary for management.
- The engagement partner must evaluate whether uncorrected factual misstatements are material individually or in aggregate.
- Factual misstatements are the easiest category to document because the evidence is binary.
Worked example: Huber Einzelhandel GmbH
Austrian retail chain, FY2024, revenue €28M, UGB. Performance materiality €210,000.
Finding 1
€14,200 supplier invoice posted to marketing instead of COGS. The correct account is determinable with certainty.
Finding 2
Customer payment of €8,750 recorded as €8,570 (data entry error, €180 difference). The bank statement confirms the correct amount.
Both are below performance materiality but are accumulated on the misstatement schedule and communicated to management for correction.
What reviewers get wrong
Factual vs judgmental misstatement
| Dimension | Factual misstatement | Judgmental misstatement |
|---|---|---|
| Nature | Objectively determinable error | Difference from judgment call |
| Certainty | Correct amount is known | "Correct" amount depends on which judgment is more reasonable |
| Evidence | Binary: right or wrong | Auditor must demonstrate why alternative is better supported |
| Typical source | Data entry, posting, arithmetic | Provision estimates, useful life assumptions |
Related terms
Related tools
Related reading
Frequently asked questions
Are classification errors factual misstatements?
Yes. An invoice posted to the wrong account is a factual misstatement even if it has no net profit impact, because the correct classification is determinable with certainty.
Do factual misstatements below performance materiality still need to be recorded?
Yes, unless they are clearly trivial under ISA 450.A2. All accumulated misstatements, including factual ones below performance materiality, are evaluated in aggregate at completion.