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CS Professional · Compliance Management, Audit and Due Diligence · Forming an Opinion and Reporting

While auditing Kaveri Textiles Ltd, the auditor finds that the financial statements comply with the applicable framework and also disclose the extent of compliance with another framework. The disclosure is not misleading, but the auditor judges it fundamental to users' understanding of the financial statements. What should the auditor do?

The auditor should add an Emphasis of Matter paragraph drawing attention to the disclosure. It is not misleading, so no modified opinion is required, but it is fundamental to users' understanding, which is the situation SA 706 (Revised) addresses through an Emphasis of Matter paragraph.

  1. AAdd an Emphasis of Matter paragraph drawing attention to the disclosureCorrect
  2. BExpress a qualified opinion because of the disclosure
  3. CAdd an Other Matter paragraph stating the auditor's responsibilities
  4. DIgnore the disclosure since it is not misleading

Explanation

Where disclosure about compliance with another framework is not misleading but is of such importance that it is fundamental to users' understanding, an Emphasis of Matter paragraph is added under SA 706 (Revised). A modified opinion is needed only if the disclosure is misleading, so the qualified opinion option is wrong.

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