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CA Intermediate · Auditing and Ethics · Audit Report

While auditing Kaveri Textiles Ltd, CA Ramesh finds that the company has not provided for a doubtful debt of Rs 40 lakh. This amount is material but not pervasive to the financial statements. Management refuses to make the provision. What type of opinion should the auditor express in the audit report?

The auditor should express a qualified opinion. Under SA 705, a material misstatement that is not pervasive, such as an unprovided doubtful debt, calls for an 'except for' opinion. Adverse opinion needs pervasiveness, and an Emphasis of Matter paragraph cannot replace modifying the opinion.

  1. AUnmodified opinion with an Emphasis of Matter paragraph
  2. BQualified opinionCorrect
  3. CAdverse opinion
  4. DDisclaimer of opinion

Explanation

Under SA 705, when the auditor concludes that misstatements are material but not pervasive, a qualified opinion ('except for') is expressed. An adverse opinion applies only when misstatements are both material and pervasive. An Emphasis of Matter paragraph cannot substitute for modification of the opinion.

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