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CA Intermediate · Auditing and Ethics · Completion and Review

CA Nandini is auditing Vindhya Pharma Ltd. During the final review she identifies that the audit team did not obtain sufficient evidence on a material component of inventory held at a remote godown, and no alternative procedures are feasible. The possible effects are material but not pervasive. Which course is correct under SA 705?

The auditor should issue a qualified 'except for' opinion. Where the auditor cannot obtain sufficient appropriate evidence and the possible effects are material but not pervasive, SA 705 requires a qualified opinion; adverse or disclaimer opinions need pervasiveness, and an Emphasis of Matter cannot substitute for modification.

  1. AIssue a qualified opinion stating 'except for' the possible effects of the matterCorrect
  2. BIssue an adverse opinion because evidence is lacking
  3. CIssue a disclaimer of opinion because inventory is material
  4. DIssue an unmodified opinion with an Emphasis of Matter paragraph

Explanation

Inability to obtain sufficient appropriate evidence where possible effects are material but not pervasive leads to a qualified opinion. An adverse opinion applies to material and pervasive misstatements, not to limitation of scope. A disclaimer needs possible effects that are both material and pervasive. Emphasis of Matter cannot replace a modified opinion.

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