CA Intermediate · Auditing and Ethics · Audit Report
While auditing Kaveri Textiles Ltd, the auditor concludes that the financial statements are free from material misstatement and prepared in all material respects per the applicable framework. However, the auditor wants to draw users' attention to a note describing a major fire at a warehouse after year end, which is already properly disclosed and is fundamental to users' understanding. What is the appropriate form of report?
The auditor should issue an unmodified opinion and add an Emphasis of Matter paragraph. The fire is properly disclosed and fundamental to users' understanding, so SA 706 requires drawing attention to it without modifying the opinion, since there is no misstatement.
- AQualified opinion with a reference to the note
- BUnmodified opinion with an Emphasis of Matter paragraphCorrect
- CAdverse opinion because the fire is significant
- DUnmodified opinion with a Key Audit Matter paragraph replacing the opinion paragraph
Explanation
Where a matter is appropriately presented or disclosed in the financial statements and is fundamental to users' understanding, SA 706 requires an Emphasis of Matter paragraph, and the opinion remains unmodified. A qualified or adverse opinion would apply only if there were a material misstatement, which is not the case here. Key Audit Matters are a separate communication and do not replace the opinion.
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