CA Intermediate · Auditing and Ethics · Completion and Review
Mehta & Associates audit Bharat Steels Ltd, whose year end is 31 March. The auditor signed the report on 30 May. On 10 June, after the financial statements were issued to members, the auditor learns of a fact that existed at the report date and would have caused the financial statements to be amended had it been known. Management refuses to amend the statements or to inform members, and no AGM has yet been held. Which response is correct under SA 560?
The auditor should inform those charged with governance, and if management still does not amend or disclose, take steps to prevent reliance on the auditor's report, usually after seeking legal advice. SA 560 requires action even after issue, so doing nothing or unilaterally reissuing the report is incorrect.
- ATake no action because the statements were already issued
- BNotify those charged with governance not to issue further, and if management does not take the necessary steps, take action to prevent reliance on the auditor's report, seeking legal advice where appropriateCorrect
- CImmediately withdraw as auditor and the duty ends
- DAdd an emphasis of matter paragraph to the original report and reissue it without telling management
Explanation
Under SA 560, for facts discovered after the financial statements are issued, the auditor discusses with management, and if management does not act, notifies those charged with governance of intent to seek to prevent future reliance on the report and takes appropriate steps, often with legal advice. Doing nothing is wrong because the duty persists. Unilateral reissue without management is not permitted.
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