An exception is evidence that is inconsistent with a management assertion. Evidence is gathered in relation to assertions in the control testing, substantive testing and opinion formulation stages of the audit. Thus, exceptions may be found in any one of those audit stages.
Evidence gathered during the control testing stage which is inconsistent with the management's assertion that control procedures are operationally effective is referred to as a control deviation. For example, if an aspect of a control procedure's operational effectiveness is that the performance of the procedure is always supervised, then evidence gathered that the control procedure is not always supervised is an example of a control deviation.
Evidence gathered during the substantive testing and opinion formulation stages which is inconsistent with management's assertion that account balances are materially complete, valid and accurate is referred to as a misstatement. For example, if management asserts that inventory is materially complete, then evidence gathered that it is not complete is an example of a misstatement. Auditors record details of misstatements, material or otherwise, on a schedule of audit differences.The auditor advises the client of all exceptions and notes the details, including the client's response, in the working papers. The auditor's subsequent actions depends upon the auditor's evaluation of the exceptions and the client's response. (Refer to separate section on Audit testing and sampling procedures).
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