CA Intermediate · Auditing and Ethics · Audit Report
While auditing Kaveri Textiles Ltd, CA Anand concludes that the financial statements are materially misstated, but the misstatement, though material, is not pervasive. Management refuses to correct it. What type of opinion should CA Anand express under SA 705 (Revised)?
A qualified opinion is correct. Under SA 705 (Revised), where uncorrected misstatements are material but not pervasive, the auditor says the statements are fairly presented 'except for' the effects of the matter. Adverse opinion applies only when the misstatements are both material and pervasive.
- AUnmodified opinion with an Emphasis of Matter paragraph
- BQualified opinionCorrect
- CAdverse opinion
- DDisclaimer of opinion
Explanation
Under SA 705, when the auditor concludes that misstatements, individually or in aggregate, are material but not pervasive, a qualified opinion ('except for') is expressed. An adverse opinion is reserved for material and pervasive misstatements. An Emphasis of Matter paragraph cannot substitute for a modification of the opinion.
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