Page 161 - CA Final PARAM Digital Book.

Part 1- SA 700

QNO Draft Opinion & Basis of Opinion Para Old Course -- (M22R)
108.500 TITANIUM CNO—Unique
You have been appointed as an auditor of Dharmnath & Sons for FY 2020-21, as entity other than a
company incorporated under the Companies Act, 2013, using a fair presentation framework. Appointment
had been made in the month of April, 2021 The financial statements have been prepared by the
management in accordance with the Accounting Standards. The management had introduced the new
computerized accounts receivable system from November 2020 and still in the implementation phase and
thus management is in the process of rectifying system deficiencies and correcting the errors. At the time of
implementation of a new system, the earlier system of accounting of receivables had been discarded. The
auditor was unable to obtain sufficient appropriate audit evidence about the entity’s accounts receivable
and inventories. The possible effects of the inability to obtain sufficient appropriate audit evidence are
deemed to be both material and pervasive to the financial statements. Write the opinion paragraph and
basis of opinion paragraph to be included in the Independent Auditor’s Report.
Answer (a) Opinion Paragraph

Disclaimer of Opinion
We were engaged to audit the financial statements of Dharmnath & Sons (“the entity”), which
comprise the balance sheet as at March 31, 2021, the statement of Profit and Loss, (the statement of
changes in equity) and the statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies.

We do not express an opinion on the accompanying financial statements of the entity. Because of the
significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we
have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion on these financial statements.

Basis for Disclaimer of Opinion
We were not appointed as auditors of the Company until after March 31, 2021, and thus did not
observe the counting of physical inventories at the beginning and end of the year. We were unable to
satisfy ourselves by alternative means concerning the inventory quantities held at March 31, 2020,
and 2021, which are stated in the Balance Sheets at ` xxx and ` xxx, respectively. In addition, the
introduction of a new computerized accounts receivable system in November 2020 resulted in
numerous errors in accounts receivable. As of the date of our report, management was still in the
process of rectifying the system deficiencies and correcting the errors. We were unable to confirm or
verify by alternative means accounts receivable included in the Balance Sheet at a total amount of `
xxx as at March 31, 2021. As a result of these matters, we were unable to determine whether any
adjustments might have been found necessary in respect of recorded or unrecorded inventories and
account receivable, and the elements making up the statement of Profit and Loss (and statement of
cash flows)

QNO Auditor Responsibility Section New Course – (SM23)
109.500 TITANIUM CNO-- SA700.240
The auditors of a listed company have affirmed in their audit report communication of significant audit
findings including significant deficiencies in internal control of the company identified to those charged
with governance. Where are such matters included in audit report of a listed company? Also dwell upon
importance of such communication.

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