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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error

Orion Co's auditor has concluded that a fraud by the finance director has caused a material misstatement that management refuses to correct. The auditor also cannot determine the full extent of the misstatement because the director has withheld records. What is the most appropriate effect on the auditor's report under ISA 705?

The auditor must modify the opinion, and where the misstatement and the scope limitation caused by withheld records could be material and pervasive, the auditor should consider a disclaimer of opinion or withdrawal. Emphasis of Matter or Key Audit Matter paragraphs cannot substitute for a modified opinion.

  1. AAn unmodified opinion with an Emphasis of Matter paragraph
  2. BA qualified opinion on the basis of the uncorrected misstatement only
  3. CA modified opinion, and the auditor should consider a disclaimer of opinion or withdrawal if the effects are material and pervasive, given the limitation on scopeCorrect
  4. DA Key Audit Matter paragraph only, with no change to the opinion

Explanation

An uncorrected material misstatement leads to a qualified or adverse opinion. The withheld records also create a scope limitation, and where the possible effects are material and pervasive the auditor considers a disclaimer or withdrawal. An Emphasis of Matter or KAM paragraph cannot replace a modified opinion.

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