What should a finance professional do if they detect a material misstatement by management?

• A. Report to governance, uphold internal controls, and ensure proper disclosure and remediation.
• B. Ignore it if the impact is unclear.
• C. Delay reporting until the next annual audit.
• D. Increase discretionary spending to offset it.

Answer: (A)

When a material misstatement by management is detected, the priority is to escalate the issue to those charged with governance (such as the audit committee or the board) so they can evaluate, investigate, and mandate corrective actions. This preserves accountability and the integrity of financial reporting. At the same time, you should work to strengthen internal controls, ensure the misstatement is properly disclosed in the financial statements, and oversee remediation to prevent recurrence. If fraud or management override is suspected, raise governance promptly and follow professional and legal requirements for disclosure and escalation, while maintaining professional independence.

Document the nature and size of the misstatement, assess materiality, gather solid evidence, and propose corrective actions—such as adjusting entries, revised disclosures, and strengthening controls. This approach aligns with standards that require timely, transparent communication and remediation to protect stakeholders and the organization.

Ignoring the issue, delaying reporting until the next audit, or masking it with increased discretionary spending would mislead readers, undermine governance, and violate ethical and legal obligations.