ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports
Orchid Co's auditor concludes that the other information contains an uncorrected material misstatement, and also that the auditor has been unable to obtain sufficient appropriate evidence on a material inventory balance, with possible effects judged material but not pervasive. Management will not correct the other information. Which reporting outcome is correct under ISAs 705 and 720 (Revised)?
The auditor should give a qualified opinion because of the material but not pervasive scope limitation over inventory, and separately describe the uncorrected material misstatement in an Other Information section. The other information issue does not alter the opinion type, and a disclaimer or adverse opinion needs pervasive effects.
- ADisclaimer of opinion, with the other information section omitted
- BQualified opinion on the financial statements for the scope limitation, plus an Other Information section describing the uncorrected misstatementCorrect
- CUnmodified opinion, with the inventory matter in a Key Audit Matters section only
- DAdverse opinion because two issues exist
Explanation
The inventory limitation is material but not pervasive, so a qualified opinion ('except for') is required under ISA 705. The uncorrected misstatement in other information is separately described in the Other Information section; it does not change the opinion. A disclaimer requires pervasive effects, and KAMs cannot substitute for modification.
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