CA Intermediate · Auditing and Ethics · Audit Report
The auditor of Gupta Motors Ltd finds that the company has not provided for a Rs 90 lakh liability, material but not pervasive, and management refuses to adjust. Separately, the auditor learns a matter that makes the report for the prior year, signed by a predecessor, relevant: opening balances contain a misstatement of Rs 2 crore, material and pervasive, which management will not correct. Considering both, which report is appropriate for the current year?
An adverse opinion is appropriate. The uncorrected opening balance misstatement is material and pervasive and affects the current period statements, so SA 510 and SA 705 require an adverse opinion; the additional unprovided liability does not change this conclusion.
- AQualified opinion only, because the Rs 90 lakh item is not pervasive
- BDisclaimer of opinion, since opening balances cannot be verified
- CUnmodified opinion with an Emphasis of Matter on the opening balances
- DAdverse opinion, because the uncorrected opening balance misstatement is material and pervasive and affects current period financial statementsCorrect
Explanation
Under SA 510, if an uncorrected material misstatement in opening balances affects current period statements, the auditor qualifies or gives an adverse opinion as appropriate. Here the misstatement is material and pervasive, so adverse is required, which also covers the non-pervasive provision issue. A disclaimer applies to inability to obtain evidence, not to a known misstatement. Emphasis of Matter cannot substitute for modification.
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