CA Intermediate · Auditing and Ethics · Audit Report
Under SA 720 (Revised), the auditor of Narmada Cement Ltd reads the Board's Report, which is other information obtained before the date of the auditor's report. The auditor concludes that it contains a material misstatement, and management refuses to correct it. What should the auditor do?
The auditor should communicate the matter to those charged with governance and, if it remains uncorrected, describe the material misstatement in the Other Information section of the report. The opinion on the financial statements does not cover other information, so it is not modified for this reason.
- ACommunicate with those charged with governance and, if uncorrected, describe the material misstatement of other information in the 'Other Information' section of the reportCorrect
- BIgnore it, since the auditor's opinion does not cover other information
- CExpress an adverse opinion on the financial statements
- DWithdraw from the engagement in every such case
Explanation
SA 720 (Revised) requires the auditor to discuss the matter with management, communicate with those charged with governance if uncorrected, and describe the uncorrected material misstatement in the Other Information section of the report. The opinion on the financial statements does not extend to other information, so an adverse opinion is not the response. Withdrawal is only considered where permitted and appropriate.
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