CA Intermediate · Auditing and Ethics · Audit Report
The audit report of Bharat Agro Ltd for the year ended 31 March is being drafted. The auditor wants to draw users' attention to a note describing a major fire at a godown after year-end that has been properly accounted and disclosed in the financial statements. The matter is fundamental to users' understanding but is not a key audit matter selected by the auditor and the opinion is otherwise unmodified. What is the correct way to report it?
The auditor should add an Emphasis of Matter paragraph referring to the note on the fire and state that the opinion is not modified in respect of it. SA 706 allows this for properly disclosed matters fundamental to users' understanding; no qualification arises.
- AInclude an Emphasis of Matter paragraph referring to the note, and state that the opinion is not modified in respect of the matterCorrect
- BQualify the opinion because the fire is a significant event
- CInclude it under the Basis for Opinion section as a reservation
- DOmit it, since properly disclosed matters can never be mentioned in the report
Explanation
SA 706 permits an Emphasis of Matter paragraph for a matter appropriately presented or disclosed that is fundamental to users' understanding. It must refer to the disclosure and state that the opinion is not modified. Qualifying is wrong because the matter is properly disclosed and there is no misstatement.
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