CA Final · Advanced Auditing, Assurance and Professional Ethics · Reporting
Mehta & Co. audits Rudra Foods Ltd. and has issued a qualified opinion because inventory was overstated. The annual report's Management Discussion section cites the overstated inventory-based profit figures as a key achievement. Management refuses to correct this other information even after discussion. Which statement best reflects the auditor's position under SA 720 (Revised)?
The auditor must consider the implications of the modification matter for the other information statement because the other information relies on the overstated inventory-based profit. A disclaimer is appropriate only in rare cases where refusal to correct casts doubt on management integrity and audit evidence reliability.
- AThe qualification has no bearing as it concerns only the financial statements
- BThe auditor must consider the implications of the matter giving rise to the modification for the statement on other information, since the other information addresses the same matterCorrect
- CThe auditor should replace the qualification with an Emphasis of Matter paragraph
- DThe auditor must immediately disclaim an opinion in every such case
Explanation
When the opinion is qualified or adverse, the auditor must consider the implications of the modification matter for the other information statement. Here the other information uses the overstated figures, so the matter is addressed in it and implications arise. A disclaimer is only for rare cases where refusal to correct casts doubt on management integrity and the reliability of audit evidence generally, not automatic.
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