ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports
Auditor Lena is reporting on Orion Ltd, a listed company. She concludes a material misstatement exists in inventory that is material but not pervasive, and she is therefore giving a qualified opinion. She also identified a going concern material uncertainty that is adequately disclosed. Orion's management has also asked that the auditor omit KAMs given the qualified opinion. Which of the following is correct under ISA 570, ISA 705 and ISA 701?
The basis section is headed 'Basis for Qualified Opinion', going concern gets its own 'Material Uncertainty Related to Going Concern' section, and KAMs are still reported for the listed entity, excluding the inventory matter already explained in the basis. Management cannot require omission of KAMs, and a disclaimer is not warranted.
- AThe basis for opinion heading becomes 'Basis for Qualified Opinion', the going concern matter is reported under 'Material Uncertainty Related to Going Concern', and KAMs are still communicated for the listed entity, excluding the matter giving rise to the qualificationCorrect
- BThe qualified opinion replaces the need for a going concern section, and KAMs are omitted because the opinion is modified
- CThe going concern uncertainty must be reported within the 'Basis for Qualified Opinion' section and KAMs must repeat the inventory misstatement
- DThe report must give a disclaimer of opinion because two significant issues exist
Explanation
Under ISA 705 the heading changes to 'Basis for Qualified Opinion'. ISA 570 requires a separate 'Material Uncertainty Related to Going Concern' section when the uncertainty is adequately disclosed. ISA 701 still applies to listed entities, but a matter giving rise to a modified opinion is by nature a KAM yet is not described in the KAM section; it is reported in the basis for opinion instead. Disclaimers apply only where evidence cannot be obtained and effects are material and pervasive.
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