Lesson: Types of Misstatements

In this lesson, Nick Palazzolo, CPA, discusses the different types of misstatements that can occur during an audit. He starts by explaining factual misstatements, which are errors that are undoubtedly incorrect, such as wrong accounts being used or incorrect debits and credits. Next, he moves on to judgmental misstatements, which are more subjective and arise from differences between management and auditor's judgments about estimates, such as unreasonable depreciation or liability accrual methods. Finally, Nick describes projected misstatements, which are those errors that an auditor believes will be found in the financial statements but have not yet been identified. The lesson emphasizes the importance of understanding these types of misstatements and their role in the audit process.