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CA Intermediate · Auditing and Ethics · Completion and Review

CA Nair signed the audit report of Himgiri Components Ltd on 10 June. On 25 June, before the AGM and after the financial statements were issued, he learns that a material fact existed at the date of the report that, had he known it, might have caused him to amend the report. Management has not taken steps to inform members. Which course is correct under SA 560?

The auditor should discuss the matter with management and those charged with governance, decide whether the financial statements need amendment, and if management does not act, notify them that he will seek to prevent reliance on his report and take appropriate action. Ignoring it or merely documenting it is wrong.

  1. AHe should discuss the matter with management and those charged with governance, determine whether the statements need amendment, and if management does not act, notify them that he will seek to prevent reliance on his report and take appropriate actionCorrect
  2. BHe should ignore it since the report has been issued
  3. CHe should simply add a note in his working papers
  4. DHe should resign immediately without any discussion

Explanation

SA 560 deals with facts discovered after the financial statements have been issued: the auditor discusses the matter with management and those charged with governance, determines if amendment is needed, and if management does not act appropriately, notifies them that the auditor will seek to prevent future reliance on the report, and takes appropriate action. Ignoring the matter or only documenting it is inadequate, and resignation without discussion is not the prescribed step.

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