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CA Intermediate · Auditing and Ethics · Completion and Review

Auditor CA Nisha signed the report of Banyan Steels Ltd on 25 May, and the financial statements were issued on 30 May. On 10 June she learns of a fact that existed at the report date, which, had she known it, might have caused her to amend her report. Management has not yet informed the shareholders about it. What is the correct course of action under SA 560?

She should discuss the fact with management and those charged with governance and decide whether the statements need amendment. If management does not act appropriately, she must notify them that she will take steps to prevent reliance on her report. Inaction or backdating would breach SA 560.

  1. ADo nothing because the report has already been issued
  2. BDiscuss the matter with management and those charged with governance, determine whether the financial statements need amendment, and if management does not act, notify them that she will seek to prevent reliance on her reportCorrect
  3. CImmediately file a complaint with the police
  4. DReissue the report with a new earlier date to hide the change

Explanation

For facts discovered after the financial statements are issued, SA 560 requires the auditor to discuss with management, determine whether amendment is needed and how management intends to address it. If management does not take the necessary steps, the auditor notifies management and those charged with governance that she will take action to prevent future reliance on the report. Doing nothing ignores this duty, and backdating is improper.

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