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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Using the work of others

Vantage Group's auditor, Prowse LLP, has completed its audit and is about to issue an unmodified opinion. The auditor of a significant overseas component, Sable SA, then tells the group team that it has identified a material fraud involving Sable's management, which Sable's finance team has refused to adjust. Sable's results are material to the group. What is the most appropriate action by the group engagement partner?

The group engagement partner should evaluate the uncorrected fraud-related misstatement's effect on the consolidated statements and, if material and uncorrected, modify the group opinion under ISA 705. Emphasis of Matter cannot replace modification, and the component location does not shield the group.

  1. AEvaluate the effect of the uncorrected misstatement on the group financial statements and, if material and not corrected, modify the group opinionCorrect
  2. BIssue the unmodified opinion because the fraud arose in a component and not at group level
  3. CIssue the report but add an Emphasis of Matter paragraph only, leaving the opinion unmodified
  4. DWithdraw the reference to Sable's results from the group report and resign immediately without further evaluation

Explanation

The group engagement partner is responsible for the group opinion and must evaluate the effect of the uncorrected misstatement on the consolidated financial statements. If it is material and management refuses to correct, a qualified or adverse opinion is required under ISA 705. An Emphasis of Matter cannot substitute for a modification for a material misstatement. Location of the fraud at component level does not remove its effect on the group, and immediate resignation without evaluation is premature.

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