CA Intermediate · Auditing and Ethics · Audit Report
In the audit of Vishwas Engineering Ltd, CA Rohan wants to draw users' attention to a note describing a major fire at a plant after year-end. The matter is properly disclosed and is fundamental to users' understanding of the financial statements, but is not a Key Audit Matter or a basis for modification. Which is the correct approach under SA 706 (Revised)?
An Emphasis of Matter paragraph should be included, stating the opinion is not modified for that matter. SA 706 uses this paragraph for matters properly disclosed in the financial statements that are fundamental to users' understanding. Other Matter paragraphs are only for matters not presented or disclosed in them.
- AQualify the opinion and describe the fire in the Basis for Qualified Opinion paragraph
- BInclude an Emphasis of Matter paragraph, and state that the opinion is not modified in respect of the matterCorrect
- CInclude an Other Matter paragraph, since the matter is not presented in the financial statements
- DOmit any reference, because disclosure by management is sufficient
Explanation
SA 706 provides that a matter appropriately presented or disclosed in the financial statements and fundamental to users' understanding is highlighted through an Emphasis of Matter paragraph, stating that the opinion is not modified. An Other Matter paragraph is used for matters NOT presented or disclosed in the financial statements, so option C is wrong here.
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