Evaluating the Effect of Uncorrected Misstatements

We shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, we shall consider:
(1) the size and nature of the misstatements, both in relation to particular classes of transactions, account balances or
disclosures and the financial statements as a whole, and the particular circumstances of their occurrence; and
(2) the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or
disclosures, and the financial statements as a whole.

Things to consider when evaluating size and nature:

Clearly trivial is the level below which misstatments do not need to be accumulated. Clearly trivial is ordinairly set at between 0% and 5% of materiality but will not exceed 5% of materiality. Consideration should be paid to the
accumulation of trivial misstatements. If there are several trivial errors noted in a particular FSA, the auditor should consider if the aggregation of the trivial errors exceeds the clearly trivial threshold.

Each individual misstatement is considered, to evaluate its effect on the relevant classes of transactions, account balances or disclosures, including whether the specific materiality level for that particular class of transactions, account
balance or disclosure, if any, has been exceeded.

If an individual misstatement is judged to be material, it is unlikely that it can be offset by other misstatements. Any mistatement that is individually greater than materiality must be corrected.

A misclassification between balance sheet line items may not be considered material in the context of the financial statements as a whole when the amount of the misclassification is small in relation to the size of the related balance sheet
line items and the misclassification does not affect the income statement or any key ratios, for example, a material misclassification between accruals and other payables.

The circumstances related to some misstatements may cause us to evaluate them as material, individually or when considered together with other misstatements accumulated during the audit, even if they are lower than materiality for
the financial statements as a whole.

Circumstances that may affect the evaluation of material by nature include the extent to which the misstatement:
(1) affects compliance with regulatory requirements;
(2) affects compliance with debt covenants or other contractual requirements;
(3) relates to the incorrect selection or application of an accounting policy that has an immaterial effect on the current
period’s financial statements but is likely to have a material effect on future periods’ financial statements;
(4) masks a change in earnings or other trends, especially in the context of general economic and industry conditions;
(5) affects ratios used to evaluate the entity’s financial position, results of operations or cash flows;
(6) affects segment information presented in the financial statements (for example, the significance of the matter to a
segment or other portion of the entity’s business that has been identified as playing a significant role in the
entity’s operations or profitability;
(7) has the effect of increasing management compensation, for example, by ensuring that the requirements for the
award of bonuses or other incentives are satisfied;
(8) is significant having regard to our understanding of known previous communications to users, for example, in
relation to forecast earnings;
(9) relates to items involving particular parties (for example, whether external parties to the transaction are
related to members of the entity’s management);
(10) is an omission of information not specifically required by the applicable financial reporting framework but which,
in our judgment, is important to the users’ understanding of the financial position, financial performance or
cash flows of the entity; or
(11) affects other information to be communicated in documents containing the audited financial statements (for
example, information to be included in a ‘Management Discussion and Analysis’ or an ‘Operating and Financial
Review’) that may reasonably be expected to influence the economic decisions of the users of the financial
statements. Chapter 33 – Other Financial Statement Considerations deals with consideration of other information,
on which we have no obligation to report, in documents containing audited financial statements.

These circumstances are only examples; not all are likely to be present in all audits nor is the list necessarily complete. The existence of any circumstances such as these does not necessarily lead to a conclusion that the misstatement is
material.

We compare the cumulative uncorrected misstatement against final materiality for the financial statements as a whole. If the cumulative misstatements approach or exceed materiality, we consider whether we have performed sufficient
procedures to give us the level of assurance we require or whether further procedures are to be performed.

Cumulative uncorrected misstatements are considered to be approaching materiality when they exceed performance materiality but are below materiality. To alert audit teams to situations where cumulative uncorrected misstatements
may be approaching performance materiality, a warning will display whenever uncorrected misstatements exceed 50% of materiality.

To assist us in evaluating the effect of misstatements accumulated during the audit and in communicating misstatements to management and those charged with governance, it may be useful to distinguish between factual misstatements,
judgmental misstatements and projected misstatements as follows:
• factual misstatements are misstatements about which there is no doubt (e.g. known errors arising from non sampling
applications such as tests of key items);
• judgmental misstatements are differences arising from the judgments of management concerning accounting estimates that
we consider unreasonable, or the selection or application of accounting policies that we consider inappropriate
• projected misstatements are our best estimate of misstatements in populations, involving the projection of misstatements
identified in audit samples to the entire populations from which the samples were drawn.

Rollover Considerations

The impact of errors from the prior period should be considered when evaluating the overall impact of current year misstatements on the financial statements. Audit teams should review the prior perior's uncorrected misstatements and
consider:
(1) errors that do not reverse in the current year but which have a cumulative effect, e.g. the recording of assets that do
not exist; and
(2) errors that reverse in the current year with a corresponding opposite effect on the current year income statement
e.g. cutoff misstatements.
When adjustments made in the current year result from errors in previous years that were not corrected because of immateriality, the portion that represents the rollover effect from the previous year would ordinarily not be reported as a
prior year adjustment.

Further guidance on evaluating the effect of uncorrected misstatements can be found in chapter 37 of the BDO Audit Manual.

Other Misstatements Relating to Presentation and Disclosure

Misstatements may not be quantitative in nature. Other misstatements may result from:
• An omission of an amount or disclosure, including inadequate or incomplete disclosures, and those disclosures required to
meet disclosure objectives of certain financial reporting frameworks as applicable.
• An inappropriate classification, aggregation or disaggregation, of information
• For a financial report prepared in accordance with a fair presentation framework, the omission of a disclosure necessary for
the financial report to achieve fair presentation beyond disclosures specifically required by the framework.

The auditor should evaluate other misstatements relating to presentation and disclosure in the same manner as uncorrected misstatements, specifically considering the size and nature of the other misstatements. If a presentation or
disclosure misstatement is considered material, the client should be asked to correct it.

Communication of Misstatements to Management

- The auditor shall communicate on a timely basis all misstatements accumulated during the audit with the appropriate level of
management, unless prohibited by law or regulation.

- The auditor shall request management to correct those misstatements.

- If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an
understanding of management's reasons for not making the corrections and shall take that understanding into account when
evaluating whether the financial statements as a whole are free from material misstatement. This evaluation includes
consideration of the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's
judgments, which may be affected by the auditor's understanding of management's reasons for not making the corrections.

Conclusions
It is the auditor's responsibility to conclude on the uncorrected misstatements and other misstatements as part of forming the opinion on the financial statements. In order to issue an unmodified opinion, we conclude that, based on the audit
evidence obtained, the financial statements as a whole are free from material misstatement. As such, we must determine if the uncorrected misstatements and other misstatements in aggregate materially impact the financial statements. If
they exceed materiality, we must ask management to correct or consider issuing a modified opinion or refrain from issuing an opinion.
 BDO
CLIENT NAME MRM, Lda
DOCUMENT NAME Summary of Corrected Misstatements
PERIOD END
DOCUMENT REF 5.03

SUMMARY OF CORRECTED MISSTATEMENTS

User Input Cells
Guidance
The auditor may request management to examine a class of transactions, account balance or disclosure in order for management to understand the cause of a misstatement identified by the auditor, perform procedures to determine the amount of the actual
misstatement in the class of transactions, account balance or disclosure, and to make appropriate adjustments to the financial statements. If, at the auditor’s request, management has examined a class of transactions, account balance or disclosure and corrected
misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain. Consider the impact of other misstatements in the work provided by management.

Instructions for use

If entries have been recorded using the trial balance manager in APT (or some other form of documentation), this tab can be deleted.
This schedule is to document corrected misstatements by way of recording the journal entries made during the course of the audit.
Audit adjustments must balance. If the adjustment does not balance, the audit adjustment columns will be highlighted. The highlighting disappears once the entry is balanced.
Only journal entries above the trivial threshold that have been recorded as a result of audit procedures should be recorded here. Clearly trivial threshold is taken from the uncorrected misstatements tab.
To add additional journal entries, insert a new row above the total and copy and paste formulas from the row above to ensure that all of the information required is captured.

Record percentage threshold used for clearly trival errors 5%

Record numeric threshold used for clearly trivial errors 57300
Estimated tax rate 32%
Corrected Audit Adjustments Tax Effect (if applicable)
Profit & Taxes Tax
Assets Liabilities Equity Loss Payable Equity Expense Documented by Reviewer Discussed with client
Description of audit adjustments File Ref Error Type Tax Effect Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr) Initials Date Initials Name Date
1 Provision (Sewerage) - MZN 9.951.089,43 Factual Yes (161,912) 161,912 -
2 FARM provision - MZN 9,925,000 Factual Yes (161,487) - - 161,487 51,676 - (51,676)
3 Fuel write-off - MZN 3,278,146 Factual Yes (53,719) 53,719 17,190 - (17,190)
4 Depreciation charge EMP Decommissioning Factual Yes (25,825) 25,825 8,264 - (8,264)
5 Depreciation charge EMP- RAP Factual Yes 15,682 (15,682) (5,018) - 5,018
6 Captalised production Ruby Factual Yes 225,350 (225,350) (72,112) - 72,112
7 - - -
8 - - -
9 - - -
10 - - -
11 - - -
12 - - -
13 - - -

Current year cumulative corrected misstatments before tax effect (161,912) - - 161,912 - - -

Tax effect - - - -

Total of cumulative corrected misstatements (161,912) - - 161,912

BDO
CLIENT NAME MRM, Lda
DOCUMENT NAME Summary of Other Misstatements
PERIOD END
DOCUMENT REF 5.03

SUMMARY OF OTHER MISSTATEMENTS RELATED TO PRESENTATION AND DISCLOSURE

Misstatements in disclosures may also be clearly trivial whether taken individually or in aggregate, and whether judged by any criteria of
size, nature or circumstances. Misstatements in disclosures that are not clearly trivial are also accumulated to assist the auditor in
evaluating the effect of such misstatements on the relevant disclosures and the financial report as a whole.

Refer to the 'Guidance' worksheet, Other Misstatements section for further information. User Input Cells

Date of
discussion Detail why correction has not
with the Management response to been made to the financial Material?
Details of other misstatement identified File Ref client disclosure misstatement statements (Yes or No)

Conclusion on Other Misstatements Related to Presentation and Disclosure:

BDO
CLIENT NAME MRM, Lda
DOCUMENT NAME Conclusion on Misstatements
PERIOD END
DOCUMENT REF 5.03
User Input Cells
This sheet should be used to document the overall conclusion on misstatements.
The individual conclusions on measurement and presentation misstatements update from the respective tabs in the workbook.
Audit teams should document the overall conclusion on misstatements in the blue input box below.

In your conclusion, determine whether the overall audit strategy and audit plan need to be revised if the nature of identified
misstatements and the circumstances of their occurrence indicate that significant deficiencies in internal control or further fraud
risks or other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material;
or the aggregate of misstatements accumulated during the audit approaches materiality. Evaluate the effect of uncorrected
misstatements on key ratios or trends, and compliance with legal, regulatory and contractual requirements (for example, debt
covenants).

See Guidance Tab for Guidance on evaluating misstatements and drawing conclusions.

Conclusion on Misstatements Related to Uncorrected Measurement Misstatements:

Warning: Total cumulative uncorrected misstatements are approaching materiality. Please review misstatments and determine if adjustment is required

Conclusion on Other Misstatements Related to Presentation and Disclosure:

No other misstatements impact the financial statements.

Consideration of Impact of Uncorrected Misstatements:

Are any of the uncorrected misstatements indicative of a significant deficiency in internal

control?

Are any of the uncorrected misstatements indicative of fraud?

Consideration of Further Possible Misstatements:

Considering the corrected and uncorrected misstatements identified, could further

possible misstatements exist due to any of the following:
- Identified deficiencies in internal control?
- Inappropriate assumptions or valuation methods used widely throughout
the financial statements, or other indications of management bias?
- Detected fraud, which may be indicative of further fraudulent entries?
- Other information obtained during the audit indicating undetected misstatements?

Overall Conclusion on Misstatements: