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

Gupta & Co audit Bharat Steels Ltd. The auditor found a material misstatement in the other information (the Chairman's statement), and management refuses to correct it. The auditor has already discussed it with those charged with governance. Management's persistent refusal, together with other conduct, now casts serious doubt on its integrity and calls into question the reliability of audit evidence generally. Which conclusion is consistent with SA 720 (Revised)?

A disclaimer of opinion on the financial statements may be appropriate. SA 720 (Revised) states that in rare circumstances, refusal to correct a material misstatement of other information may cast such doubt on management's integrity that the reliability of audit evidence in general is questioned.

  1. AAdd an Emphasis of Matter paragraph on the Chairman's statement and keep an unmodified opinion
  2. BA disclaimer of opinion on the financial statements may be appropriate in these rare circumstancesCorrect
  3. CIssue an adverse opinion only on the Chairman's statement and an unmodified opinion on the financial statements
  4. DReport the matter only in the Report on Other Legal and Regulatory Requirements without any modification

Explanation

SA 720 (Revised) recognises that in rare circumstances a disclaimer of opinion on the financial statements may be appropriate when refusal to correct a material misstatement of the other information casts such doubt on the integrity of management and those charged with governance as to call into question the reliability of audit evidence in general. An Emphasis of Matter paragraph would not address that doubt. The auditor does not give an opinion on the other information itself.

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