CA Intermediate · Auditing and Ethics · Audit Report
While auditing Anand Steels Ltd (unlisted), CA Meera finds that the company has material uncertainty about going concern. The financial statements adequately disclose it. In another respect, she was unable to attend inventory count and could not obtain sufficient alternate evidence for inventory, which is material but not pervasive. What should her report contain?
She should give a qualified opinion with a basis for qualification for the inventory limitation and report the adequately disclosed going concern uncertainty in a separate section titled Material Uncertainty Related to Going Concern. The limitation is not pervasive, so no disclaimer applies, and KAM cannot replace a modification.
- AQualified opinion with a basis for qualification paragraph for inventory, and a separate section 'Material Uncertainty Related to Going Concern'Correct
- BUnmodified opinion with a Key Audit Matter for inventory
- CDisclaimer of opinion, since two issues exist
- DAdverse opinion on inventory and an Emphasis of Matter on going concern, merged into one paragraph
Explanation
Inventory scope limitation that is material but not pervasive leads to a qualified opinion ('except for the possible effects'). Adequately disclosed material uncertainty about going concern is reported under a separate heading, 'Material Uncertainty Related to Going Concern', per SA 570, and not as a modification. A disclaimer or adverse opinion would require pervasiveness or evidence-based misstatement.
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
- While auditing Kaveri Textiles Ltd, the auditor finds that the financial statements are free from material misstatement, but management has …
- CA Meera is auditing Sahyadri Pharma Ltd. Management has used the going concern basis. Audit evidence shows a material uncertainty exists ab…
- While auditing a private company, Vikas & Co. is required to report on internal financial controls over financial reporting. Under the Compa…
- The auditor of Narmada Foods Ltd has concluded that the financial statements give a true and fair view. However, the company has a major lit…
- Auditor of Sagar Foods Ltd, a listed company, is evaluating which matters to report as Key Audit Matters (KAMs) under SA 701. Which statemen…
- Auditor CA Neha is auditing Orion Auto Ltd, a listed company, and has identified a matter as a Key Audit Matter (KAM) relating to revenue re…