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CA Intermediate · Auditing and Ethics · Completion and Review

CA Rohan Iyer audits Tulsi Retail Ltd for FY 2025-26 and signed his report on 25 May 2026. On 10 July 2026, after the financial statements were issued, he learns that inventory of Rs 3 crore (materially above materiality) was overstated through fictitious stock sheets, a fact that existed at the report date. Management agrees the statements are misstated. What is the correct course under SA 560?

Since a material misstatement existing at the report date came to light after issue and management agrees, the auditor should have the financial statements revised, perform the necessary procedures, and issue a new report on the revised statements. Delaying to next year's audit is not acceptable under SA 560.

  1. ATake no action since the financial statements are already issued
  2. BOnly inform the registrar of companies directly
  3. CWait until the next year's audit and correct the comparatives
  4. DAsk management to revise the financial statements, and if they do, carry out necessary procedures, review the steps taken and issue a new report on the revised statementsCorrect

Explanation

For facts discovered after the financial statements are issued, SA 560 requires the auditor to discuss with management, determine whether amendment is needed, and if management amends, perform required procedures and issue a new report on the amended statements. Waiting until next year is wrong because the auditor must act now on a known material misstatement. Direct reporting to the ROC arises only if management does not act.

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