CA Intermediate · Auditing and Ethics · Audit Report
While auditing Kaveri Textiles Ltd, the auditor finds that the financial statements are free from material misstatement, but management has refused to let her visit a sub-contractor's godown holding a small quantity of stock. The effect of this limitation is material but not pervasive. What opinion should she express?
The auditor should express a qualified opinion. She could not obtain sufficient appropriate evidence because of the scope limitation, and the possible effects are material but not pervasive. Adverse opinions and disclaimers need pervasiveness, and an Emphasis of Matter paragraph cannot replace a modified opinion.
- AUnmodified opinion with an Emphasis of Matter paragraph
- BQualified opinionCorrect
- CAdverse opinion
- DDisclaimer of opinion
Explanation
Inability to obtain sufficient appropriate audit evidence, where possible effects are material but not pervasive, results in a qualified opinion (SA 705). An adverse opinion applies to misstatements that are material and pervasive, not to a limitation of scope. A disclaimer needs the effects to be both material and pervasive. An Emphasis of Matter paragraph cannot substitute for modifying the opinion.
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