Skip to content

CA Intermediate · Auditing and Ethics · Completion and Review

Auditor CA Reddy signed the report on Sparkle Foods Ltd on 10 May, and the financial statements were issued on 20 May. On 15 May, before issue, he learns that a major customer, whose Rs 80 lakh receivable was shown as good, was declared insolvent on 8 May due to conditions existing at the balance sheet date. Management refuses to adjust. What is the most appropriate response under SA 560?

The auditor should discuss the matter with management and those charged with governance, and if management does not adjust the financial statements, issue a modified opinion before issue. An Emphasis of Matter paragraph cannot substitute for correcting a known material misstatement.

  1. AIgnore it, since the event occurred after the report date
  2. BDiscuss with management and those charged with governance, and if not corrected, modify the opinion before issue of the financial statementsCorrect
  3. CWithdraw from the engagement without any communication
  4. DInclude the matter as an Emphasis of Matter paragraph and give an unmodified opinion

Explanation

Facts becoming known after the report date but before issue require the auditor to discuss with management, and if the statements are to be amended, take steps accordingly. If management does not amend and the auditor believes they should be, he modifies the opinion. An Emphasis of Matter cannot cure a known material misstatement, so option D is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Completion and Review shows your real accuracy, how long you take and where you lose marks.

Practise Completion and ReviewFree diagnostic mock

More Completion and Review questions