CA Intermediate · Auditing and Ethics · Audit Report
In the audit of Sundaram Foods Ltd, the financial statements properly disclose a major fire at the main plant after year-end. It was a significant event, and CA Vikram wants to draw users' attention to this disclosure while the opinion stays unmodified. Where should he place this in the report under SA 706 (Revised)?
He should include a separate Emphasis of Matter paragraph that refers to the disclosure in the financial statements and states that his opinion is not modified in respect of the matter. SA 706 (Revised) permits this for properly disclosed matters fundamental to users' understanding of the financial statements.
- AIn the Basis for Opinion paragraph, as a qualification
- BIn a separate Emphasis of Matter paragraph, with a clear reference to the disclosure in the financial statementsCorrect
- CIn the Key Audit Matters section, replacing the matter with the highest risk
- DIn the Report on Other Legal and Regulatory Requirements, without mentioning the financial statements
Explanation
SA 706 (Revised) allows an Emphasis of Matter paragraph for a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. It should be a separate section with a heading, refer to where the matter is disclosed, and state that the opinion is not modified. Using the Basis for Opinion section would wrongly suggest a modification.
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