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CA Intermediate · Auditing and Ethics · Audit Report

Auditor of Sagar Foods Ltd notes that the company has disclosed a major fire at its warehouse after the year-end. The disclosure in the notes is adequate and fundamental to users' understanding. The auditor wishes to draw users' attention to it without modifying the opinion. What is the correct approach under SA 706 (Revised)?

The auditor should add an Emphasis of Matter paragraph that refers to the note disclosing the fire and states the opinion is not modified for it. This is correct because the matter is adequately disclosed and fundamental to understanding. An Other Matter paragraph applies only to matters not disclosed.

  1. AInclude the matter in the Key Audit Matters section only and not in a separate paragraph
  2. BQualify the opinion because the event is significant
  3. CInclude an Emphasis of Matter paragraph referring to the note, and state that the opinion is not modified in respect of the matterCorrect
  4. DInclude an Other Matter paragraph, since the matter is not presented in the financial statements

Explanation

An Emphasis of Matter paragraph refers to a matter already appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. The opinion remains unmodified, and the paragraph says so. An Other Matter paragraph is for matters not presented or disclosed, so option D is wrong.

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