CA Intermediate · Auditing and Ethics · Audit Report
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. The auditor agrees that the disclosure is adequate and the going concern basis remains appropriate. The auditor wants to draw users' attention to this fundamental matter without modifying the opinion. Which is the correct audit response under SA 706?
The auditor should add an Emphasis of Matter paragraph referring to Note 30 and stating that the opinion is not modified for that matter. SA 706 permits this for matters already properly disclosed that are fundamental to understanding. An Other Matter paragraph is meant for undisclosed matters.
- AInclude an Emphasis of Matter paragraph referring to Note 30, and state that the opinion is not modified in respect of that matterCorrect
- BInclude the matter as a Key Audit Matter and omit any other reference
- CIssue a qualified opinion because the event is significant
- DInclude an Other Matter paragraph describing the fire in detail
Explanation
SA 706 allows an Emphasis of Matter paragraph for a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding. It must refer to the note and state the opinion is not modified. An Other Matter paragraph is for matters not presented or disclosed in the financial statements, so it is wrong here.
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