CA Intermediate · Auditing and Ethics · Audit Report
The auditor of Narmada Foods Ltd has concluded that the financial statements give a true and fair view. However, the company has a major litigation with a government authority, properly disclosed in Note 32, whose outcome is uncertain and which is fundamental to users' understanding of the financial statements. What should the auditor do in the report?
The auditor should add an Emphasis of Matter paragraph drawing attention to Note 32 while keeping the opinion unmodified. The litigation is properly disclosed and fundamental to users' understanding, so SA 706 calls for emphasis rather than modification. Uncertainty alone does not justify qualification or a disclaimer.
- AQualify the opinion because the outcome of the litigation is uncertain
- BInclude an Emphasis of Matter paragraph referring to Note 32, without modifying the opinionCorrect
- CInclude the matter as a Key Audit Matter in place of the opinion section
- DIssue a disclaimer of opinion because the outcome cannot be determined
Explanation
Under SA 706, where a matter is appropriately presented or disclosed and is fundamental to users' understanding, the auditor adds an Emphasis of Matter paragraph. The opinion is not modified because the disclosure is adequate. Qualification or disclaimer would apply only if disclosure were inadequate or evidence were unavailable.
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 Gupta Motors Ltd finds that the company has not provided for a Rs 90 lakh liability, material but not pervasive, and manageme…
- CA Meera is auditing Sunrise Pharma Ltd, a listed company. She could not obtain sufficient appropriate audit evidence on the existence of in…
- Auditor of Sagar Foods Ltd notes that the company has disclosed a major fire at its warehouse after the year-end. The disclosure in the note…
- In the audit of Sundaram Foods Ltd, the financial statements properly disclose a major fire at the main plant after year-end. It was a signi…
- Under SA 720 (Revised), the auditor of Narmada Cement Ltd reads the Board's Report, which is other information obtained before the date of t…
- CA Neha is auditing Lotus Foods Ltd, an unlisted company, for the year ended 31 March. She has been asked by the Board to decide whether to …