Page 138 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could
be both material and pervasive.
Multiple Uncertainties: The auditor shall disclaim an opinion when, in extremely rare circumstances involving
multiple uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit
evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial
statements due to the potential interaction of the uncertainties and their possible cumulative effect on the
financial statements.
Draft Disclaimer of Opinion
Introduction Part : We were engaged to audit the financial statements of ABC & Associates (“the entity”), which
comprise the balance sheet as at March 31, 20XX, the statement of Profit and Loss, [the statement of changes in
equity (where applicable)] and statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies.
Opinion Wordings: We do not express an opinion on the accompanying financial statements of the entity.
Reference to Basis for Disclaimer: 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.

(CNO- SA 705.050) What is Pervasive:
Context of term pervasive: Pervasive is a term used in the context of misstatements, to describe the effects on
the financial statements of misstatements or the possible effects on the financial statements of misstatements, if
any, that are undetected due to an inability to obtain sufficient appropriate audit evidence.
Pervasive Effect : Pervasive effects on the financial statements are those that in the auditor’s judgment: Are not
confined to specific elements, accounts or items of the financial statements; If so confined, represent or could
represent a substantial proportion of the financial statements; or In relation to disclosures, are fundamental to
users’ understanding of the financial statements.
Pervasive, therefore, is that which is not localized to any one or two elements of a financial statements, but the
impact is across various elements of the financial statements.
Example of Non-Pervasive Impact (Localized): For example, if sufficient appropriate audit evidence is not
available for say Inventory but the other elements are properly supported by documentary evidence then the
non-availability of information on Inventory is localized to possible misstatement of inventory but has no impact
on the other elements like trade receivables, PPE, loans, Trade payables etc.
Therefore, it is necessary to ascertain whether the impact of misstatement is pervasive or not pervasive.

(CNO - SA 705.060) Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to
a Management-Imposed Limitation after the Auditor Has Accepted the Engagement
Management-Imposed Limitation: If, after accepting the engagement, the auditor becomes aware that
management has imposed a limitation on the scope of the audit that the auditor considers likely to result in the
need to express a qualified opinion or to disclaim an opinion on the financial statements, the auditor shall request
that management remove the limitation.
Management refuses: If management refuses to remove the limitation, the auditor shall communicate the
matter to those charged with governance, unless all of those charged with governance are involved in managing
the entity,
and determine whether it is possible to perform alternative procedures to obtain sufficient appropriate audit
evidence.
If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine the
implications as follows:

www.auditguru.in 07.12