CA Intermediate · Auditing and Ethics · Audit Report
CA Nisha audits Gomti Foods Ltd, a listed company. She is unable to obtain sufficient appropriate audit evidence on several elements of the financial statements; the possible effects are both material and pervasive. What should she do under SA 705 (Revised) regarding the Key Audit Matters section (SA 701)?
She should disclaim an opinion and omit the Key Audit Matters section. A pervasive inability to obtain sufficient appropriate evidence requires a disclaimer under SA 705 (Revised), and the standard prohibits communicating KAMs in such a report because it could imply credibility of the financial statements.
- ADisclaim an opinion and not communicate Key Audit Matters in the reportCorrect
- BDisclaim an opinion and still list Key Audit Matters to give users comfort
- CExpress an adverse opinion and report Key Audit Matters
- DExpress a qualified opinion and report Key Audit Matters
Explanation
Where the auditor cannot obtain sufficient appropriate evidence and the possible effects are material and pervasive, a disclaimer is required. SA 705 states that when a disclaimer is expressed, the auditor shall not include a Key Audit Matters section, since communicating KAMs could suggest the financial statements are credible as a whole. An adverse or qualified opinion is wrong because the issue is a scope limitation that is pervasive.
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