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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Subsequent events and going concern

Brightwater Ltd's auditor signed the audit report on 15 April 20X6. On 2 May 20X6, before the financial statements were issued, the auditor learns that a material inventory write-down was omitted from the financial statements. Management is unwilling to amend them. What is the auditor's most appropriate action under ISA 560?

Where management refuses to amend and the financial statements have not yet been issued, the auditor should modify the opinion, qualified or adverse depending on pervasiveness, and date the report afresh. An emphasis of matter or narrative disclosure cannot cure a material misstatement left uncorrected in the financial statements.

  1. AIssue no further communication, as the report has already been signed
  2. BAsk management to disclose the matter in the annual report narrative only, without amending the financial statements
  3. CAdd an emphasis of matter paragraph to the existing report and reissue it with the original date
  4. DIf the financial statements have not yet been issued, modify the opinion (qualified or adverse) and give the report a new dateCorrect

Explanation

Facts discovered after the report date but before issue require the auditor to discuss with management and consider whether the financial statements need amendment. If management refuses and the statements are not yet issued, the auditor modifies the opinion as the misstatement is material. An emphasis of matter cannot substitute for a modification of the opinion, and the report must be dated after the new evidence is obtained.

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