CA Final · Advanced Auditing, Assurance and Professional Ethics · Sustainable Development Goals (SDG) & Environment, Social and Governance (ESG) Assurance
CA Nisha is auditing the financial statements of Himalaya Cements Ltd. The company's sustainability report, issued with the annual report, states that it has "zero pending environmental litigation", but Nisha's audit evidence shows a material NGT penalty case pending that is disclosed as a contingent liability in the financial statements. Management declines to correct the report. What should Nisha do?
Nisha should treat the inconsistency as an uncorrected material misstatement of other information, communicate it to those charged with governance, and consider the effect on her report, including describing it in the other information section. The financial statements opinion is not automatically qualified because they correctly disclose the case.
- AIgnore it, as the sustainability report is outside the financial statements
- BTreat it as an uncorrected material misstatement of other information, communicate with those charged with governance and consider the effect on her report and further actionsCorrect
- CQualify the opinion on the financial statements immediately because of the other information
- DWithdraw from the audit, as other information can never be inconsistent
Explanation
Under SA 720 the auditor reads other information and, if a material misstatement exists and management will not correct it, communicates with those charged with governance and takes appropriate action, including reporting in the other information section. The financial statements themselves are correctly disclosed, so the opinion is not automatically qualified.
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