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CA Final · Advanced Auditing, Assurance and Professional Ethics · Reporting

During the audit of Himalaya Cements Ltd., CA Meera finds a material misstatement in the other information in the annual report. Management refuses to correct it despite repeated requests. The refusal makes her doubt the integrity of management and those charged with governance, to the point of questioning the reliability of audit evidence in general. Which action is contemplated by SA 720 (Revised) in such rare circumstances?

A disclaimer of opinion on the financial statements may be appropriate. In rare circumstances, refusal to correct a material misstatement of the other information can cast such doubt on the integrity of management and those charged with governance that the reliability of audit evidence in general is called into question.

  1. AA disclaimer of opinion on the financial statements may be appropriateCorrect
  2. BAn unmodified opinion with an Emphasis of Matter paragraph on the other information
  3. CAn adverse opinion solely on the other information, leaving the financial statements opinion unmodified
  4. DIgnoring the refusal, since the other information is outside the financial statements

Explanation

SA 720 (Revised) recognises that in rare circumstances a disclaimer of opinion on the financial statements may be appropriate. This is when refusal to correct the material misstatement of other information casts such doubt on the integrity of management and those charged with governance that the reliability of audit evidence in general is called into question. The other options either understate the consequence or treat the matter as irrelevant. An Emphasis of Matter paragraph cannot cure a loss of confidence in audit evidence.

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