CA Intermediate · Auditing and Ethics · Audit Report
While auditing Kaveri Textiles Ltd for the year ended 31 March 2026, the auditor finds that the financial statements are free from material misstatement. However, the management has drawn attention in Note 32 to a major fire at the warehouse in April 2026, which was properly disclosed. The auditor believes this matter is fundamental to users' understanding of the financial statements. What is the appropriate audit response under SA 706?
The auditor should add an Emphasis of Matter paragraph referring to Note 32 and keep the opinion unmodified. The fire is properly disclosed and fundamental to users' understanding, so SA 706 applies. Modifying the opinion is wrong because there is no misstatement or limitation.
- AQualify the opinion because the fire is a significant event
- BInclude an Emphasis of Matter paragraph referring to Note 32, without modifying the opinionCorrect
- CInclude the matter as a Key Audit Matter and omit any other reference
- DIssue an adverse opinion since the event occurred after the year end
Explanation
The matter is appropriately presented and disclosed, so the financial statements are not misstated. SA 706 allows an Emphasis of Matter paragraph for a matter fundamental to users' understanding, and the opinion is not modified. Qualification would be wrong because there is no misstatement or scope limitation.
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