While performing substantive testing during the audit of a company's financial statements, an auditor may discover certain errors or misstatements in the financial records or supporting documents. In such circumstances,

If an auditor finds any errors in a company's financial statements or the supporting documents while performing substantive testing during audit, the auditor may require the company to do further audit testing. The auditor writes a management letter with a summary of the errors found and shares the letter with the company and the audit committee. Usually, there are errors due to: External auditors don't detect an error during audit procedures, which is called detection risk. Internal auditors or the internal record systems don't identify or fix an error, which is called control risk. The company or auditor doesn't detect initial errors when the financial process and reporting begin. Section 129 of the Companies Act, 2013 provides that the financial statements shall give a true and fair view of the state of affairs of the company and comply with the accounting standards notified under section 133. Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.