What is a Material Misstatement ? (2024)

A material misstatement is a misstatement in the financial statements that could reasonably be expected to influence the decisions of users of the financial statements. Material misstatements can be caused by errors or fraud.

Errors are unintentional mistakes that occur in the preparation of the financial statements. They can be caused by a variety of factors, including misunderstandings, mistakes in calculation, or oversight.

Fraud is a deliberate attempt to deceive financial statement users by intentionally misrepresenting or omitting information in the financial statements. Fraud can be perpetrated by management, employees, or third parties, and can take many forms, including the manipulation of accounting records, the misappropriation of assets, or the intentional misstatement of financial information.

Material misstatements can have a significant impact on the financial statements and can lead to users making inappropriate decisions based on the misleading information. It is the responsibility of the auditor to identify and report on material misstatements in the financial statements.