ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations
Karolis & Partners audits Delmar Foods. The auditor has concluded that non-compliance with health regulations has a material effect on the financial statements, management has refused to correct the accounting for the resulting fine, and the financial statements remain materially misstated but not pervasively so. What effect does this have on the auditor's report?
A qualified 'except for' opinion is appropriate. ISA 250 requires a qualified or adverse opinion where material non-compliance is not adequately reflected in the financial statements. Because the misstatement is material but not pervasive, qualification is correct, and an Emphasis of Matter paragraph cannot replace correcting the misstatement.
- AAn unmodified opinion with an Emphasis of Matter paragraph
- BA qualified opinion (except for) because of the material misstatementCorrect
- CA disclaimer of opinion because the entity has breached laws
- DAn adverse opinion in all cases of material non-compliance
Explanation
Under ISA 250, if the auditor concludes non-compliance has a material effect on the financial statements and it has not been adequately reflected, the auditor expresses a qualified or adverse opinion under ISA 705. Here the misstatement is material but not pervasive, so a qualified opinion is appropriate. An Emphasis of Matter cannot substitute for correcting a misstatement.
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