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CA Intermediate · Auditing and Ethics · Audit Report

CA Meera is auditing Sunrise Pharma Ltd, a listed company. She could not obtain sufficient appropriate audit evidence on the existence of inventory held at a third-party location, which is material but not pervasive. Management had also imposed the restriction on access before her appointment as auditor. What is the correct audit response?

She should express a qualified opinion and explain the inability to obtain evidence in the Basis for Qualified Opinion section. SA 705 requires this when possible effects are material but not pervasive; a disclaimer is for pervasive effects, and the timing of the restriction is irrelevant.

  1. AExpress an unmodified opinion because the restriction pre-dated her appointment
  2. BExpress a qualified opinion, with the basis for opinion describing the inability to obtain evidence, if the possible effects are material but not pervasiveCorrect
  3. CDisclaim an opinion because any scope limitation requires a disclaimer
  4. DExpress an adverse opinion since inventory is a material area

Explanation

Under SA 705, if inability to obtain sufficient appropriate evidence has possible effects that are material but not pervasive, a qualified opinion ('except for') is expressed. The timing of the restriction does not change the requirement. A disclaimer applies only if effects could be both material and pervasive, and adverse opinion arises from misstatement, not scope limitation.

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