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CA Intermediate · Auditing and Ethics · Audit Report

Kaveri Pharma Ltd has disclosed in Note 22 a major fire at its main plant after the year end, which was a non-adjusting event properly disclosed. The auditor wants to draw users' attention to this note, and the financial statements are otherwise fairly presented. What is the appropriate form of reporting under SA 706 (Revised)?

The auditor should add an Emphasis of Matter paragraph referring to Note 22 and keep the opinion unmodified. Because the event is adequately disclosed and fundamental to users' understanding, SA 706 supports drawing attention to it. No misstatement or scope limitation exists, so qualification or disclaimer is inappropriate.

  1. AQualify the opinion because the fire is significant
  2. BInclude an Emphasis of Matter paragraph referring to Note 22, without modifying the opinionCorrect
  3. CInclude the matter in the Key Audit Matters section instead of the opinion paragraph and modify the opinion
  4. DDisclaim the opinion due to uncertainty about the plant's future

Explanation

SA 706 permits an Emphasis of Matter paragraph for a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. The opinion is not modified because the disclosure is adequate. Qualifying or disclaiming would be wrong since there is no misstatement or scope limitation.

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