Skip to content

CA Intermediate · Auditing and Ethics · Completion and Review

CA Tanvi is auditing Narmada Infra Ltd, a listed company. In the final stage she identifies that the financial statements contain a material misstatement in the valuation of inventory of Rs 4 crore, which is 15% of profit before tax. Management refuses to correct it. The effect is material but not pervasive. She also notes that management has otherwise provided all information. Which of the following is the correct audit response in the report?

She should issue a qualified opinion with except-for wording and a Basis for Qualified Opinion paragraph. The inventory misstatement is material but not pervasive, so adverse is too severe, and a disclaimer relates to evidence limitations. An Emphasis of Matter cannot be used instead of modifying the opinion under SA 705.

  1. AIssue a qualified opinion with 'except for' wording and describe the misstatement in a Basis for Qualified Opinion paragraphCorrect
  2. BIssue an adverse opinion because management refused to correct the misstatement
  3. CIssue a disclaimer of opinion because of inability to obtain evidence
  4. DIssue an unmodified opinion with an Emphasis of Matter paragraph on inventory

Explanation

Under SA 705 a qualified opinion is expressed when the auditor concludes that misstatements, individually or in aggregate, are material but not pervasive. The auditor uses 'except for' wording and gives a Basis for Qualified Opinion paragraph describing the matter and its quantified effect where practicable. Adverse needs pervasiveness, disclaimer relates to inability to obtain evidence, and Emphasis of Matter cannot replace modification for a known uncorrected misstatement.

Did you get it right without looking?

One question tells you little. A timed set on Completion and Review shows your real accuracy, how long you take and where you lose marks.

Practise Completion and ReviewFree diagnostic mock

More Completion and Review questions