Factual, judgmental and projected misstatements

How ISA 450 sorts misstatements into factual, judgmental and projected, why each leads to a different next step, and how to keep them on the file.

By Achekam · 11 October 2026 · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

Three items sit on the senior's list at the end of fieldwork. A supplier invoice was posted twice. The client's warranty provision looks light to the team. And a sample of payroll payments turned up two overpayments which, spread across the whole payroll, suggest there are more.

All three are misstatements and all three belong on the schedule. They are not the same kind of thing, though, and treating them alike leads to the wrong conversation with the client. ISA 450 sorts them into three categories, and each one points to a different next step.

Factual: no room for doubt

ACCA explains that ISA 450 categorises factual misstatements as misstatements about which there is no doubt, such as a clear breach of an IFRS requirement. The invoice posted twice is factual. So is depreciation calculated on the wrong cost, a sale recorded in the wrong year where the delivery note is unambiguous, or a classification the framework plainly does not allow.

The next step is mechanical: quantify it exactly, agree the correcting entry and ask management to post it. A factual misstatement has a precise amount and a precise fix. The only open question is whether the client will make it.

Judgmental: a difference of view

ACCA explains that ISA 450 describes judgmental misstatements as differences arising from management's judgements on accounting estimates that the auditor considers unreasonable, or on the selection or application of accounting policies that the auditor considers inappropriate.

The warranty provision is the classic case. Management's estimate rests on assumptions about how many claims will arise and what they will cost. The team has built its own expectation and management's figure falls outside it. How the misstatement is measured, against the team's point estimate or the edge of an acceptable range, is itself a judgement, and the paper should say which and why.

The next step is a conversation about evidence. Judgmental differences are often resolved by more information, such as claims history, attorneys' letters or events after year end, rather than by insistence. Record both positions and why the team's view held or changed. A policy the team considers inappropriate may also affect other years, and that deserves a note of its own.

Projected: an estimate from a sample

ACCA explains that ISA 450 describes projected misstatements as the auditor's best estimate of misstatements in populations, projecting the misstatements found in audit samples to the entire populations from which the samples were drawn.

In the payroll example, the two overpayments found are factual for those two payments. The rest of the projected amount is an estimate of what the untested payments might contain. It is a number with no list of entries behind it.

Why a projected amount is not simply booked

ACCA notes that it is normally not appropriate to ask management to correct a projected misstatement; instead the auditor considers whether further testing is appropriate. The reasoning is plain. Nobody can post a correction to errors no one has identified, and booking an estimate of unknown errors swaps one uncertainty for another.

What the team can do instead:

• extend the sample, or test the population for the specific cause found, turning part of the projection into identified factual errors;
• ask management to investigate the population for the same kind of error, correct what it finds, and then re-test;
• carry the projected amount on the schedule and include it when judging whether uncorrected misstatements are material in aggregate.

How to project exceptions, and how to treat a genuine one-off, is covered in projecting sample exceptions.

What has to be accumulated and documented

As quoted by ACCA, ISA 450 requires the auditor to accumulate misstatements identified during the audit, other than those that are clearly trivial, and ACCA explains that the auditor sets a monetary amount below which misstatements count as clearly trivial. ACCA also explains that ISA 450 requires the auditor to document that amount, every misstatement accumulated and whether it was corrected, and the conclusion on whether uncorrected misstatements are material, with the basis for it. ACCA's article on the evaluation of misstatements explains these requirements with worked examples.

Classification feeds straight into that documentation. A reviewer reading the schedule should see at a glance which items have exact amounts, which rest on a disagreement and which are estimates.

Recording adjustments in Achekam while the register is kept by hand

In Achekam, lead schedules are built from the engagement's trial balance with each figure traceable to its lines. Staff can record an audit adjustment on a line with a reason, and findings can be raised from a working paper and closed or withdrawn. Put the category at the start of the reason, for example "Factual: supplier invoice posted twice" or "Judgmental: warranty provision below the team's expectation, see estimates paper", so the type travels with the adjustment. Keep projected amounts off the lines: a line adjustment reads as a correction to post, and a projection is not one.

There is a limit to be clear about. Achekam's completion Summary of Uncorrected Misstatements stays empty, because no screen or route writes to the misstatement register it reads; the server code to record or project a misstatement exists, but no route calls it. The team therefore keeps the misstatement schedule by hand on a working paper of its own, and that schedule is where projected amounts live. Keeping the uncorrected misstatements summary suggests a layout.

A classification table for the completion file

Classify each item the moment it is found, not at completion. A label written while the evidence is fresh saves the partner from reconstructing, weeks later, whether an amount was certain, arguable or estimated.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.