CA Final · Advanced Auditing, Assurance and Professional Ethics · Specialised Areas
Shree Textiles Ltd engaged CA Meera to audit its financial statements. Management has prepared them using a special purpose framework: a cash-basis statement of receipts and payments required by a lender under a loan covenant. Meera concludes the framework is acceptable for the lender's purpose. Which action best reflects the auditor's responsibility under SA 800 (special considerations: audits of special purpose frameworks)?
The auditor should accept the engagement and add an Emphasis of Matter paragraph describing the basis of accounting and warning that the statements are prepared for a specific purpose and may not suit other purposes, as SA 800 requires for special purpose frameworks.
- ARefuse the engagement, because only a general purpose framework can be audited
- BInclude an Emphasis of Matter paragraph describing the basis of accounting and stating that the statements are prepared for a specific purpose and may not be suitable for another purposeCorrect
- CReport under the fair presentation requirements of the Companies Act, 2013 without any reference to the framework
- DIssue a disclaimer of opinion because cash-basis statements cannot give a true and fair view
Explanation
Under SA 800, where financial statements are prepared under a special purpose framework, the auditor's report must describe the purpose and basis of accounting, and include an Emphasis of Matter alerting users that the statements may not be suitable for another purpose. Refusing the engagement is wrong because special purpose frameworks are auditable when acceptable. A disclaimer is unwarranted for this reason alone.
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