CA Intermediate · Auditing and Ethics · Audit Report
The auditor of Mehta Foods Ltd concludes that the company's inventory, which is highly material, has been misstated. The misstatement is material but not pervasive. Management refuses to adjust. Which opinion should the auditor express under SA 705 (Revised)?
The auditor should express a qualified opinion. Under SA 705 (Revised), a material misstatement that is not pervasive leads to a qualified opinion, while an adverse opinion applies only when the misstatement is both material and pervasive. Emphasis of Matter cannot replace modification.
- AQualified opinionCorrect
- BAdverse opinion
- CDisclaimer of opinion
- DUnmodified opinion with an Emphasis of Matter paragraph
Explanation
Under SA 705, when the auditor concludes that misstatements, individually or in aggregate, are material but not pervasive, a qualified opinion ('except for') is expressed. An adverse opinion is reserved for material and pervasive misstatements. Emphasis of Matter cannot substitute for a modified opinion.
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.
More Audit Report questions
- The auditor of Sundaram Foods Ltd has obtained sufficient appropriate evidence that the company's financial statements are fairly presented.…
- The financial statements of Sundaram Pharma Ltd disclose in Note 30 a major fire at its main plant after year-end, with a full explanation. …
- During the audit of Mehta Pharma Ltd, CA Sneha finds that the company's physical inventory count at year-end was not observed, and she could…
- CA Meera is auditing Sahyadri Pharma Ltd. Management has used the going concern basis. Audit evidence shows a material uncertainty exists ab…
- While auditing a private company, Vikas & Co. is required to report on internal financial controls over financial reporting. Under the Compa…
- The auditor of Narmada Foods Ltd has concluded that the financial statements give a true and fair view. However, the company has a major lit…