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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations

Auditor Halden & Co finds that the managing director of Orsino Group, a listed company, has been involved in non-compliance with securities law that has a material effect on the financial statements. Management refuses to correct the financial statements, and the auditor concludes the non-compliance is pervasive. The jurisdiction has no legal prohibition on disclosing the matter to an authority. Which course of action is most consistent with ISA 250 (Revised)?

Because the material non-compliance is not corrected and is pervasive, the auditor issues an adverse opinion. With the managing director involved, the auditor should also consider reporting to an external authority and withdrawing from the engagement, subject to legal and ethical requirements. An emphasis paragraph or disclaimer would be inappropriate.

  1. AIssue an unmodified opinion with an Emphasis of Matter paragraph, since the matter is disclosed to those charged with governance
  2. BIssue an adverse opinion, and consider the need to report the matter to an appropriate authority outside the entity and withdrawal from the engagementCorrect
  3. CIssue a disclaimer of opinion because the managing director is involved, and take no further action
  4. DIssue a qualified opinion because pervasive non-compliance is only a limitation of scope

Explanation

Where material non-compliance is not properly reflected and is pervasive, the opinion is adverse. Where management is involved, the auditor also considers reporting to an outside authority and withdrawing, subject to law and ethics. An emphasis paragraph cannot replace a modified opinion, and a disclaimer applies to inability to obtain evidence rather than a known misstatement.

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