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

Godavari Steels Ltd.'s management refuses to correct a material misstatement in the other information in the annual report, despite the auditor's request. The auditor considers that this refusal casts such doubt on the integrity of management and those charged with governance that the reliability of audit evidence in general is questionable. Which conclusion is consistent with SA 720 (Revised)?

A disclaimer of opinion on the financial statements may be appropriate in rare circumstances. When refusal to correct a material misstatement in the other information casts serious doubt on management's integrity and the reliability of audit evidence generally, an emphasis paragraph or an adverse opinion would not fit.

  1. AAdd an Emphasis of Matter paragraph and keep the unmodified opinion
  2. BIn rare circumstances, a disclaimer of opinion on the financial statements may be appropriateCorrect
  3. CAlways issue an adverse opinion on the financial statements
  4. DReport only in the Other Matter paragraph and take no further action

Explanation

SA 720 (Revised) states that in rare circumstances, a disclaimer of opinion on the financial statements may be appropriate when the refusal to correct the misstatement casts such doubt on management integrity as to question the reliability of audit evidence generally. An adverse opinion applies to material pervasive misstatement in the statements, not to this doubt about evidence.

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