ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review
At the end of the audit of Orrin Co, the auditor concludes that uncorrected misstatements, individually and in aggregate, are material but not pervasive, and the misstatement is in the valuation of inventory. Which action is correct regarding the auditor's report?
The auditor should give a qualified 'except for' opinion with a Basis for Qualified Opinion section explaining the inventory misstatement. ISA 705 reserves adverse opinions for pervasive misstatement and disclaimers for inability to obtain evidence, and an Emphasis of Matter paragraph cannot cure a material misstatement.
- AIssue an unmodified opinion with an Emphasis of Matter paragraph
- BIssue a qualified opinion ('except for') with a Basis for Qualified Opinion section describing the misstatementCorrect
- CIssue an adverse opinion because management refused to correct the error
- DIssue a disclaimer of opinion because the error cannot be quantified
Explanation
Under ISA 705, where the financial statements are materially misstated but the effects are not pervasive, the auditor expresses a qualified opinion and explains the matter in a Basis for Qualified Opinion section. An adverse opinion is for pervasive misstatement, and a disclaimer is for inability to obtain evidence. An Emphasis of Matter cannot replace a modification for a material misstatement.
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