Skip to content

CA Intermediate · Auditing and Ethics · Audit Report

The auditor of Himalaya Pharma Ltd, a listed company, could not obtain sufficient appropriate audit evidence on the existence of a significant investment, which is material and also pervasive to the financial statements. Management refuses to allow the auditor to perform alternative procedures. What is the correct audit response under SA 705 (Revised)?

The auditor should disclaim an opinion, or withdraw from the engagement where practicable and permitted by law. SA 705 (Revised) requires this when an inability to obtain sufficient appropriate evidence has possible effects that are both material and pervasive. A qualified or adverse opinion would be inappropriate.

  1. AExpress a qualified opinion with an 'except for' basis for the limitation
  2. BExpress an adverse opinion on the financial statements
  3. CWithdraw from the audit only if the opinion would otherwise be unmodified
  4. DDisclaim an opinion, or withdraw from the audit where practicable and permitted by lawCorrect

Explanation

When the auditor cannot obtain sufficient appropriate evidence and the possible effects are both material and pervasive, SA 705 requires a disclaimer of opinion, or withdrawal where practicable and permitted by law. A qualified opinion suits only non-pervasive effects. An adverse opinion arises from disagreement or misstatement, not from a scope limitation.

Did you get it right without looking?

One question tells you little. A timed set on Audit Report shows your real accuracy, how long you take and where you lose marks.

Practise Audit ReportFree diagnostic mock

More Audit Report questions