CA Intermediate · Auditing and Ethics · Completion and Review
During the audit of Bharat Agro Ltd, the auditor discovers on 20 May that a major customer went insolvent on 25 April, and the receivable of Rs 90 lakh at 31 March is now irrecoverable. The financial statements were signed by the auditor on 10 May and are not yet issued to the members. The auditor's report date was 10 May. Under SA 560, what is the most appropriate action?
The auditor should discuss the matter with management and see whether the financial statements need amendment. If they are amended, audit procedures are extended up to the date of the new report and a new or amended report is issued. Ignoring the fact because the report is already signed is incorrect under SA 560.
- ATake no action because the report has already been dated and signed
- BDiscuss the matter with management and, if the financial statements are amended, extend audit procedures to the date of the new report and issue a new or amended reportCorrect
- CWithdraw from the engagement and file a complaint with ICAI against management
- DAdd a footnote to the 10 May report without any discussion with management or those charged with governance
Explanation
Facts becoming known after the report date but before issue of the financial statements require the auditor to discuss the matter with management and determine whether amendment is needed. If amended, the auditor extends procedures to the new report date and issues a new or amended report. Doing nothing ignores a known material fact, and a footnote without discussion is not the prescribed approach.
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