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CA Intermediate · Auditing and Ethics · Completion and Review

After signing and issuing the audit report of Dhruv Cements Ltd on 25 May, the auditor CA Iyer learns on 20 June that a material liability of Rs 12 crore existed at year end but was omitted, and that the facts would have affected his report. The financial statements have not yet been laid before members at the AGM. What is the correct sequence of response under SA 560?

The auditor should discuss the matter with management and those charged with governance, and if the statements are amended, perform required procedures and issue a new or amended report. If management does not act, the auditor takes steps to prevent reliance on the previously issued report.

  1. ADo nothing since the report has already been issued
  2. BDiscuss with management and those charged with governance, determine whether amendment is needed, and if management amends, perform necessary procedures, and issue a new or amended report; if management does not act, take action to prevent reliance on the reportCorrect
  3. CResign immediately and inform the ICAI only
  4. DInform shareholders directly at the AGM without consulting management

Explanation

For facts discovered after issue, SA 560 requires the auditor to discuss with management, consider whether amendment is needed, and if the statements are amended, extend procedures and issue a new or amended report. If management does not take required steps and the statements are yet to be with members, the auditor seeks to prevent reliance on the report. Informing shareholders directly without discussion or merely resigning skips the prescribed steps.

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