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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Group audits

During the audit of Ostrava Group, the group engagement team finds that the auditor of a significant overseas subsidiary, Nova SA, has been unable to complete work on its receivables because the local management denied access to records. The group team cannot perform sufficient alternative procedures. Nova's potential misstatement is material and pervasive to the group. What opinion is appropriate on the consolidated financial statements?

A disclaimer of opinion is appropriate. The group team cannot obtain sufficient appropriate evidence and the possible effects of undetected misstatements are both material and pervasive. A qualified opinion would apply only if not pervasive, and an adverse opinion relates to known misstatements.

  1. AUnmodified opinion with an emphasis of matter paragraph
  2. BQualified opinion, except for the possible effects on receivables
  3. CDisclaimer of opinion, because the possible effects are both material and pervasiveCorrect
  4. DAdverse opinion, because the records were denied

Explanation

Inability to obtain sufficient appropriate evidence with possible effects that are material and pervasive leads to a disclaimer of opinion under ISA 705. An adverse opinion relates to identified misstatements, not scope limitations. An emphasis of matter cannot substitute for modification, and a qualified opinion applies only where effects are material but not pervasive.

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