Each of the following is a type of known misstatement, except:

Question

Each of the following is a type of known misstatement, except:

BlackTom AI · Accepted Answer

When evaluating what constitutes a known misstatement, consider whether the issue reflects an incorrect amount, misclassification, or improper application of accounting principles that the auditor can detect. 
Option A describes 'a difference between the classification of a reported financial statement element and the classification according to GAAP.' This is a misstatement in presentation/classification because the financial statement element is being classified inconsistently with GAAP, which the auditor would identify as a misstatement.
Option B presents 'differences between management and the auditor's judgment regarding estimates.' Here, the core issue is a difference in judgment about estimates. Such a difference represents a professional disagreement or estimation uncertainty rather than a concrete misstatement, unless the difference results in an incorrect figure. Therefore, it is not automatically a known misstatement.
Option C states 'an inaccuracy in processing data.' This is a classic form of a misstatement arising from processing errors, which the auditor can detect and report as a known misstatement.
Option D covers 'the misapplication of accounting principles.' Misapplying accounting principles leads to incorrect accounting treatment and is a textbook example of a known misstatement.
In summary, options A, C, and D describe clear misstatements that the auditor would identify. Option B, while potentially leading to an erroneous estimate if unresolved, is fundamentally a judgmental difference rather than an outright misstatement, and thus is the exception.

ACG442_A_2025SPRING Auditing Ch06 Practice Quiz

Each of the following is a type of known misstatement, except:

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