Page 180 - CA Final PARAM Digital Book.

misstatement is deemed to be pervasive to the consolidated financial statements. Thus, the auditor shall
express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, `

Adverse Opinion
In our opinion and to the best of our information and according to the explanations given to us, because of
the significance of the matter discussed in the Basis for Adverse Opinion section of our report, the
accompanying consolidated financial statements do not give a true and fair view in conformity with the
accounting principles generally accepted in India, of their consolidated state of affairs of the Group, its
associates and jointly controlled entities, as at March 31, 2019, of its consolidated profit/loss, (consolidated
position of changes in equity) and the consolidated cash flows for the year then ended.

Basis for Adverse Opinion is given below:
As explained in Note X, the M/s Hary Ltd. has not consolidated subsidiary M/s Sam Ltd. that the M/s Hary
Ltd acquired during 2018 because it has not yet been able to determine the fair values of certain of the
subsidiary’s material assets and liabilities at the acquisition date. This investment is therefore accounted for
on an estimate basis. Under the accounting principles generally accepted in India, the Group should have
consolidated this subsidiary and accounted for the acquisition based on provisional amounts. Had M/s Sam
Ltd. been consolidated, many elements in the accompanying consolidated financial statements would have
been materially affected. The effects on the consolidated financial statements of the failure to consolidate
have not been determined.

QNO Draft Opinion (Not Given Agreement) Old Course -- (N21E, M23M)
119.300 TITANIUM CNO -- Unique New Course -- (SM23)
CA Madhu is the statutory auditor of Lakshmi Ltd. for the Financial year 2020-21. In respect of loans and
advances of ₹ 75 Lakh given to Srinian Pvt. Ltd., the Company has not furnished any agreement to CA
Madhu and in absence of the same, he is unable to verify the terms of repayment, chargeability of interest
and other terms.

Justify the type of opinion which CA Madhu should give in such situation. Also, Draft an appropriate
Opinion paragraph and Basis of opinion paragraph.
Answer In the present case, with respect to loans and advances of ₹ 75 Lacs given to Sriman Pvt. Limited, the
Company has not furnished any agreement to CA Madhu. In the absence of such an agreement, CA Madhu
is unable to verify the terms of repayment, chargeability of interest and other terms. For an auditor, while
verifying any loans and advances, one of the most important audit evidence is the loan agreement.
Therefore, the absence of such document in the present case, tantamount to a material misstatement in the
financial statements of the company. However, the inability of CA Madhu to obtain such audit evidence is
though material but not pervasive so as to require him to give a disclaimer of opinion.

Thus, in the present case, CA Madhu should give a qualified opinion

The relevant extract of the Qualified Opinion Paragraph and Basis for Qualified Opinion paragraph is as
under:

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for
the effects of the matter described in the Basis for Qualified Opinion section of our report, the financial
statements of Lakshmi Limited give a true and fair view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as on 31.03.2021 and profit/ loss for the year ended
on that date.

Basis for Qualified Opinion

The Company is unable to furnish the loan agreement with respect to loans and advances of ` 75 Lacs given
to Sriman Pvt Limited. Consequently, in the absence of such a agreement, we are unable to verify the terms
of repayment, chargeability of interest and other terms.
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