CA Intermediate · Auditing and Ethics · Completion and Review

While auditing Kaveri Textiles Ltd for the year ended 31 March, the auditor finishes fieldwork on 20 May. The financial statements are approved by the Board and the audit report is signed on 28 May. On 5 June the auditor learns that a major customer, whose balance was fully included in receivables at year end, became insolvent on 2 June. The financial statements have not yet been issued to members. Under SA 560, what is the auditor's correct response?

The auditor should discuss the matter with management and those charged with governance, decide whether the financial statements need amendment, and act accordingly. SA 560 requires this for facts discovered after the report date but before issue of the financial statements, so ignoring it or deferring it to next year is incorrect.

1. AIgnore the matter because the event occurred after the date of the auditor's report
2. BTreat it as a fact that became known after the date of the auditor's report but before issue of financial statements, discuss with management and take appropriate action, including considering whether the financial statements need amendmentCorrect
3. CWithdraw from the engagement immediately without discussing with management or those charged with governance
4. DDisclose the matter only in the next year's audit report