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CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

Anand & Associates audit Brahma Pharma Ltd. After acceptance, the firm discovers that management has imposed a restriction that would stop it from observing the year-end inventory count, and management refuses to remove it. The auditor cannot perform alternative procedures. The restriction was in place before the appointment was accepted by the firm and the firm had not known of it. What is the most appropriate response under SA 210 and SA 705 principles?

The auditor should ask management to remove the restriction, withdraw from the engagement where permitted, and if withdrawal is not possible, modify the opinion by qualifying it or disclaiming it according to how pervasive the possible effects are. An adverse opinion is not the response for a scope limitation.

  1. AAccept the restriction and issue an unmodified opinion because the restriction is by management
  2. BWithdraw from the engagement where possible, and if not possible, issue a qualified opinion or disclaimer of opinion depending on the pervasiveness of the possible effectsCorrect
  3. CIssue an adverse opinion because management has imposed a limitation
  4. DContinue silently and mention the restriction only in the engagement letter

Explanation

When management imposes a limitation that leads to a scope limitation likely to result in a modified opinion, the auditor should request removal. If not removed, the auditor withdraws where legally possible; otherwise gives a qualified opinion or disclaimer depending on pervasiveness. An adverse opinion is for material misstatements, not scope limitation, so that option is wrong.

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