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CA Intermediate · Auditing and Ethics · Audit Report

While auditing Brahma Steels Ltd, CA Tarun reads the Board's Report, the only other information obtained before the audit report date, and finds a material misstatement of that other information. Management refuses to correct it. The financial statements themselves are fairly presented. What is the correct response under SA 720 (Revised)?

The auditor should describe the uncorrected material misstatement in the 'Other Information' section of the audit report. Under SA 720 (Revised), the opinion on the financial statements does not cover other information, so it is not modified when the financial statements are fairly presented.

  1. AQualify the opinion on the financial statements
  2. BReport this fact in the 'Other Information' section of the audit report, describing the uncorrected misstatementCorrect
  3. CIssue an adverse opinion on the financial statements
  4. DWithdraw from the engagement without reporting

Explanation

Under SA 720 (Revised), if the other information contains an uncorrected material misstatement, the auditor describes it in the Other Information section of the report. The opinion on the financial statements is not modified because the opinion does not cover other information. Withdrawal is considered only if the matter cannot be resolved through reporting, which is not the first response.

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