CA Intermediate · Auditing and Ethics · Audit Report
The auditor of Narmada Foods Ltd could not obtain sufficient appropriate audit evidence about the existence of inventory held at a third-party location worth 15% of total assets, and no alternative procedures were possible. Management refused access. The auditor judges the possible effects to be material but not pervasive. What opinion should the auditor express?
The auditor should express a qualified opinion, using 'except for the possible effects' wording. The limitation on inventory evidence is material but not pervasive, so SA 705 prescribes a qualification rather than a disclaimer, and adverse opinion applies only to identified pervasive misstatements.
- ADisclaimer of opinion
- BAdverse opinion
- CQualified opinion, 'except for the possible effects'Correct
- DUnmodified opinion with an Emphasis of Matter paragraph
Explanation
Under SA 705, inability to obtain sufficient appropriate evidence whose possible effects are material but not pervasive leads to a qualified opinion with 'except for' wording. A disclaimer is used only when possible effects are both material and pervasive. An adverse opinion relates to known misstatements, not a scope limitation.
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