CA Final · Advanced Auditing, Assurance and Professional Ethics · Sustainable Development Goals (SDG) & Environment, Social and Governance (ESG) Assurance
A CA firm is auditing Deccan Steels Ltd.'s financial statements and is also asked to give assurance on its sustainability report. Management has not recorded any provision for a pending environmental clean-up order from a pollution control authority, while the sustainability report discloses the same order as a significant risk. The auditor considers the provision likely to be material. What is the appropriate step?
The auditor should discuss the matter with management, evaluate whether a provision is required under Ind AS 37, and modify the audit opinion if the material misstatement stays uncorrected. The separate sustainability engagement does not excuse ignoring evidence of a probable obligation affecting the financial statements.
- AIgnore the matter in the audit, since the sustainability report is a separate engagement
- BTreat the other information inconsistency seriously: discuss with management, consider the need for a provision under Ind AS 37, and modify the audit opinion if the misstatement is not correctedCorrect
- CDelete the disclosure from the sustainability report on the auditor's own authority
- DInclude the matter only in the management representation letter
Explanation
Information in the sustainability report shows that a probable obligation may exist, bearing on the financial statements. The auditor should discuss with management, evaluate recognition under Ind AS 37, and modify the opinion if material misstatement remains uncorrected. Auditors cannot alter management's disclosures, and a representation letter cannot substitute for evidence.
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