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CA Intermediate · Auditing and Ethics · Completion and Review

Rohan & Co. are auditors of Zenith Pharma Ltd. Near completion, management refuses to give the written representation that it has fulfilled its responsibility for preparing the financial statements as set out in the engagement terms. What should the auditor do under SA 580?

The auditor should re-evaluate management's integrity and then disclaim an opinion, or withdraw where permitted. Under SA 580, refusal to give the representation on responsibility for the financial statements undermines the reliability of other representations, and such representations cannot be replaced by oral assurance or an Emphasis of Matter.

  1. AAccept an oral confirmation in its place and proceed to an unmodified opinion
  2. BDisclaim an opinion or withdraw from the engagement where permitted, as the refusal raises doubt about management's integrity and the reliability of other representationsCorrect
  3. CIssue an unmodified opinion with an Emphasis of Matter paragraph
  4. DObtain representations from the company's bankers instead and continue

Explanation

SA 580 says that if management does not provide the representation about its responsibility for the financial statements and for complete information, the auditor discusses it, re-evaluates management's integrity and the reliability of other evidence, and takes appropriate action, including disclaiming an opinion under SA 705 or withdrawing where law permits. Oral confirmation or an Emphasis of Matter does not cure this.

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