Misstatements And Deficiencies Practice Test

In an audit of an issuer (public company), the auditor identifies a $3.2 million overstatement of revenue from bill-and-hold transactions that do not meet the criteria for revenue recognition; pretax income is $18 million and overall materiality is $1.5 million. Management refuses to correct the misstatement, which is confined to one business unit and not pervasive to the financial statements. Under PCAOB standards, what type of report modification should be considered due to the misstatement?

In an audit of a nonissuer healthcare clinic, the auditor identifies a $95,000 misclassification between short-term and long-term debt. Overall materiality is $800,000; the clearly trivial threshold is $40,000. The misclassification does not affect net income but impacts the current ratio used in a lender covenant. Which action should the auditor take regarding the identified misstatement?