Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Audit Report and Reporting under CARO

A company's financial statements include a note about a major fire at a warehouse after the year-end. The auditor concludes the matter is not a key audit matter because it did not require significant auditor attention, but it is fundamental to users' understanding of the financial statements. What should the auditor do?

The auditor should include an Emphasis of Matter paragraph. The fire is a properly disclosed matter that did not need significant audit attention, so it is not a key audit matter, yet it is fundamental to users' understanding, which is exactly what SA 706 (Revised) covers.

  1. AInclude an Emphasis of Matter paragraph drawing attention to the matterCorrect
  2. BInclude the matter as a key audit matter anyway
  3. CModify the opinion by issuing a qualified opinion
  4. DOmit it, as only key audit matters can be highlighted

Explanation

A matter that is not a key audit matter, but is fundamental to users' understanding (for example a subsequent event), is drawn attention to through an Emphasis of Matter paragraph under SA 706 (Revised). A modified opinion is not needed merely because the matter is properly disclosed.

Did you get it right without looking?

One question tells you little. A timed set on Audit Report and Reporting under CARO shows your real accuracy, how long you take and where you lose marks.

Practise Audit Report and Reporting under CAROFree diagnostic mock

More Audit Report and Reporting under CARO questions