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CS Professional · Compliance Management, Audit and Due Diligence · Concepts of Various Audits

During the audit of Sundaram Engineering Ltd, the auditor discovers that a large receivable is under litigation, with a significant uncertainty disclosed adequately in the notes. The auditor wants to draw users' attention to this disclosed matter without modifying the opinion. Which reporting step applies?

The auditor should include an Emphasis of Matter paragraph in the audit report. The litigation uncertainty is adequately disclosed and is fundamental to users' understanding, so the opinion stays unmodified. Qualifying or disclaiming would be wrong because there is no misstatement or scope limitation.

  1. AQualify the opinion on the receivable
  2. BInclude an Emphasis of Matter paragraphCorrect
  3. CIssue a disclaimer of opinion
  4. DReport it only to the Audit Committee, not in the audit report

Explanation

Under SA 706, where a matter is appropriately presented or disclosed and is fundamental to users' understanding, the auditor adds an Emphasis of Matter paragraph without modifying the opinion. Qualification or a disclaimer would be wrong because the disclosure is adequate. Reporting only to the Audit Committee does not draw users' attention in the report.

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