Page 243 - CA Inter Audit PARAM

CA Ravi Taori
ii. Accounts Manager is not providing him present addresses of customers as well as suppliers for
sending external confirmations. Even mail ids have not been provided on the pretext of business
confidentiality.
iii. He was not able to verify revenues of entity due to lack of complete details.
iv. He has been asking for bills on a sample basis for the purpose of verifying expenses, but staff has
been making lame excuses.

The matter was brought to knowledge of higher management, but of no avail. The auditor, CA S has
come to the conclusion that the possible effects on the financial statements of undetected
misstatements would be material and affecting many aspects of financial statements and in such a
case, a qualification of the opinion would be inadequate to communicate the gravity of the situation.

How should the auditor proceed in such a situation?
Answer As per SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”, 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.

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:
(1) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive, the auditor shall qualify the opinion;or
(2) If the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive so that a qualification of the opinion
would be inadequate to communicate the gravity of the situation, the auditor shall:
(i) Withdraw from the audit, where practicable and possible under applicable law or regulation; or
(ii) If withdrawal from the audit before issuing the auditor’s report is not practicable or possible,
disclaim an opinion on the financial statements.
If the auditor withdraws, before withdrawing, the auditor shall communicate to those charged with
governance any matters regarding misstatements identified during the audit that would have given
rise to a modification of the opinion.

www.auditguru.in 8.13