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CA Intermediate · Auditing and Ethics · Audit Report

While auditing Sundaram Textiles Ltd, the auditor concludes that the financial statements are materially misstated, and the misstatement is pervasive. Management has refused to correct it. Which opinion should the auditor express under SA 705 (Revised)?

The auditor should express an adverse opinion. Where uncorrected misstatements are both material and pervasive and the auditor has sufficient appropriate evidence, SA 705 requires adverse opinion. Qualified opinion suits non-pervasive matters, and a disclaimer is used only when evidence cannot be obtained.

  1. AQualified opinion
  2. BAdverse opinionCorrect
  3. CDisclaimer of opinion
  4. DUnmodified opinion with an Emphasis of Matter paragraph

Explanation

Under SA 705, when the auditor has obtained sufficient appropriate audit evidence and concludes that misstatements, individually or in aggregate, are both material and pervasive, an adverse opinion is required. A qualified opinion is for material but not pervasive misstatements. A disclaimer applies when the auditor cannot obtain evidence, not when evidence shows misstatement.

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