CA Intermediate · Auditing and Ethics · Audit Report
Auditor CA Meera is auditing Godavari Steels Ltd. In the draft report she is qualifying the opinion on a material misstatement in depreciation. She also identifies, as a separate matter, that the company has not complied with a Companies Act requirement relating to maintenance of books of account in electronic mode with proper backup on servers located in India. Which approach to the report is correct?
Qualification on depreciation is reported in the Opinion and Basis for Qualified Opinion sections under SA 705, while the books-of-account non-compliance is reported in the separate 'Report on Other Legal and Regulatory Requirements' under section 143(3). The two are reported independently and neither cancels the other.
- AMention the qualification only in the opinion paragraph; the Companies Act matter is not reportable
- BReport the depreciation qualification under SA 705 in the Opinion and Basis sections, and report the books-of-account matter under 'Report on Other Legal and Regulatory Requirements' as required by section 143(3)Correct
- CReport the books-of-account matter in the Emphasis of Matter paragraph only
- DWithdraw the earlier qualification because two issues cannot be reported together
Explanation
A modified opinion on the financial statements is given under SA 705 with a Basis for Qualified Opinion. The other legal and regulatory matters required by section 143(3), including proper books of account and their maintenance, are reported separately in that section of the report, and the audit report must also state any qualification relating to them. Emphasis of Matter is for properly disclosed matters and is not a substitute. Reports can contain several matters.
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