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CA Intermediate · Auditing and Ethics · Audit Report

CA Vikram, auditor of Orchid Engineering Ltd, could not obtain sufficient appropriate audit evidence about inventory worth 60% of total assets because management denied access to the warehouses. The possible effects are both material and pervasive. No alternative procedures are feasible. Management also declines to remove the limitation. Which is the correct course of action?

The auditor should disclaim an opinion and, where practicable, consider withdrawing from the engagement. SA 705 requires this when inability to obtain sufficient appropriate evidence has possible effects that are both material and pervasive. A qualified opinion suits only non-pervasive effects, and adverse opinion relates to identified misstatements.

  1. AExpress a qualified opinion stating 'except for the possible effects of inventory'
  2. BExpress an adverse opinion on the financial statements
  3. CDisclaim an opinion, and if practicable withdraw from the engagementCorrect
  4. DIssue an unmodified opinion with an Emphasis of Matter paragraph

Explanation

Under SA 705, inability to obtain sufficient appropriate evidence whose possible effects are material and pervasive requires a disclaimer of opinion. Where practicable, the auditor considers withdrawing, subject to legal requirements. Qualified would fit only a non-pervasive effect, and adverse relates to known misstatements, not inability to obtain evidence.

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