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CA Intermediate · Auditing and Ethics · Completion and Review

Bhatia & Co audited Orion Foods Ltd and signed the report on 25 May. On 10 June, after the financial statements were issued to members, the auditor learns of a fact, existing at the report date, that would have caused him to modify his opinion. Management has not been informed. Which action is correct under SA 560?

The auditor should discuss the matter with management and those charged with governance and determine whether the financial statements need amendment. If management fails to act, the auditor should take action to prevent reliance on his report. Under SA 560, doing nothing or informing outsiders first is incorrect.

  1. ATake no action since the financial statements have already been issued and the audit is complete
  2. BDirectly inform the shareholders and the Registrar of Companies without discussing it with management
  3. CDiscuss the matter with management and those charged with governance, determine whether amendment is needed, and if management does not take steps, take action to prevent reliance on the auditor's reportCorrect
  4. DOnly withdraw the audit firm from future audits of Orion Foods Ltd

Explanation

For facts discovered after financial statements are issued, SA 560 requires the auditor to discuss with management and those charged with governance, and determine whether amendment is needed. If management does not amend and inform members, the auditor notifies them that he will seek to prevent future reliance on the report, and takes appropriate action. Going directly to outsiders first skips the required discussion, and doing nothing ignores the duty.

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