CA Intermediate · Auditing and Ethics · Audit Report
During the audit of Sundaram Foods Pvt Ltd, the auditor could not attend the physical verification of inventory at year-end and could not perform alternative procedures. Inventory is material but the other areas of the financial statements are fairly stated, and the possible effects are not pervasive. What is the appropriate opinion?
A qualified opinion is appropriate. The auditor could not obtain sufficient appropriate evidence on inventory, but the possible effects are material and not pervasive. SA 705 (Revised) therefore requires an 'except for the possible effects' opinion, not an adverse opinion or a disclaimer.
- AAdverse opinion, because inventory is material
- BDisclaimer of opinion, because one area could not be verified
- CQualified opinion, stating 'except for the possible effects' of the matterCorrect
- DUnmodified opinion with an Emphasis of Matter paragraph on inventory
Explanation
Under SA 705 (Revised), inability to obtain sufficient appropriate evidence where the possible effects are material but not pervasive leads to a qualified opinion ('except for'). An adverse opinion applies to misstatements, not evidence limitations. A disclaimer needs the possible effects to be both material and pervasive. Emphasis of Matter cannot cure a scope limitation.
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