CA Intermediate · Auditing and Ethics · Audit Report
The auditor of Sundaram Pharma Ltd is reporting for FY 2025-26. Management's estimate of a provision for a litigation claim is described in detail in Note 32 to the financial statements, and the auditor agrees that the disclosure is adequate. The auditor wants to draw users' attention to this note because it is fundamental to understanding the financial statements. Which is the correct approach?
The auditor should add an Emphasis of Matter paragraph referring to Note 32 and stating that the opinion is not modified for that matter. SA 706 (Revised) uses this paragraph for adequately disclosed matters fundamental to users' understanding, whereas an Other Matter paragraph deals with undisclosed matters.
- AInclude an Emphasis of Matter paragraph referring to Note 32 and state that the opinion is not modified in respect of that matterCorrect
- BQualify the opinion because the matter is significant
- CInclude the matter in the Other Matter paragraph without referring to the note
- DOmit any reference, since adequately disclosed matters cannot be highlighted
Explanation
Under SA 706 (Revised), an Emphasis of Matter paragraph refers to a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. It must refer to the disclosure and state that the opinion is not modified. Other Matter paragraphs relate to matters not presented or disclosed in the financial statements, so option C is wrong.
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