Page 241 - CA Inter Audit PARAM

CA Ravi Taori

SA705 – “Modifications To The Opinion In The Independent Auditor’s Report” deals with the form and
content of both types of report. The following are the draft of the opinion paragraphs of the reports.

(d) Adverse Report
Adverse Opinion
We have audited the accompanying consolidated financial statements of ABC Company Limited (hereinafter
referred to as the “Holding Company”) and its subsidiaries (the Holding Company and its subsidiaries together
referred to as “the Group”), its associates and jointly controlled entities, which comprise the consolidated
balance sheet as at March 31, 2021, the consolidated statement of profit and Loss, (consolidated statement
of changes in equity) and the consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies (hereinafter
referred to as the “consolidated financial statements”). 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, 2021,
of its consolidated profit/loss, (consolidated position of changes in equity) and the consolidated cash flows
for the year then ended.

(b). Qualified Report
Qualified Opinion
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which
comprise the balance sheet as at March 31, 2021, and the statement of Profit and Loss, (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 and other explanatory information (in which are
included the Returns for the year ended on that date audited by the branch auditors of the Company’s
branches located at (location of branches). 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 aforesaid financial statements 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 at March 31st,
2021 and profit/loss, (changes in equity) and its cash flows for the year ended on that date.

QNO Disclaimer—Case Study Old Course—(N21R/SM25)
705.25 Bhaskar CNO - SA705.060
Delightful Ltd. Is a company engaged in the production of smiley balls. During the FY 2020-21 the company
transferred its accounts to computerised system (SAP) from manual system of accounts. Since the
employees of the company were not well versed with the SAP system, there were many errors in the
accounting during the transition period. As such the statutory auditors of the company were not able to
extract correct data and reports from the system. Such data was not available manually also. Further, the
employees and the management of the company were not supportive in providing the requisite
information to the audit team. The auditor believes that the possible effects on the financial statements
of undetected misstatements could be both material and pervasive. Explain the kind of audit report that
the statutory auditor of the company should issue in this case.
Answer The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit
evidence on which to base the opinion, and the auditor concludes that the possible effects on the
financial statements of undetected misstatements, if any, could be both material and pervasive.
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.

In the present case Delightful Ltd, the statutory auditor of the company is unable to extract correct
data and reports from the SAP system for conduct of audit. Also, such data and reports are not available
manually. Moreover, the auditor believes that the possible effects on the financial statements of
undetected misstatements could be both material and
pervasive.
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