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CA Intermediate · Auditing and Ethics · Audit Report

CA Rohit is auditor of Sahyadri Infra Ltd. Management refuses to let him obtain confirmations from the company's principal customers, accounting for 70% of receivables and a very large share of total assets. No alternative procedures can give sufficient evidence, and the possible effects are both material and pervasive. What should CA Rohit do under SA 705?

CA Rohit should disclaim an opinion. Management imposed a scope limitation, no alternative evidence is available, and the possible effects on receivables are material and pervasive. SA 705 therefore requires a disclaimer, with consideration of withdrawal where practicable, rather than a qualified or adverse opinion.

  1. AIssue a qualified opinion stating 'except for' the receivables
  2. BIssue an adverse opinion
  3. CDisclaim an opinion, and where practicable withdraw from the engagement as per lawCorrect
  4. DIssue an unmodified opinion with an Emphasis of Matter paragraph

Explanation

A limitation on scope with possible effects that are material and pervasive requires a disclaimer of opinion under SA 705, and the auditor considers resigning where practicable. Adverse opinion relates to misstatement, not inability to obtain evidence. Qualification applies only if effects are not pervasive.

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