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1) Have a Bite co, Q41, kapan Exam Kit 2012. pg 38
you had satisfied yourself that the company ( a fast food chain) internal control in its preparation in the itchen is low. However during your final audit, it comes to ur attention that a customer has sued the company for food poisoning claiming $200000. This amount is material but the management believes that it has good defences against the claim.
following ur audit u have concluded that there is a possibility, but not a probability, that the claim will be successful. However management have decided not to make a disclosure or provision.Explain the effect on our audit report.
Answer: this is my answer, could you please tell me if i am right?
Since the management has not made a disclosure, the audit would MODIFY the report . Since the mistatement is MATERIAL BUT NOT PERVASIVE, it will be a QUALIFIED report with an “EXCEPT FOR the claim of 200000, which is not disclosed in the financial statements, the fin statements are true and fair”. Th auditor would explain the basis for modification in the paragraph BEFORE the audit opinion.2) Further could you please explain when to use “emphasis of matter” and where does this paragraph come, before or after audit opinion?
if you conclude that the fin statements are true and fair in all material aspects, but u want to draw the users’ attention to a specific fundamental point which has already been disclosed in the fin statements, would it be an unmoified report OR a modified report with an emphasis of matter?can u have an “emphasis of matter” along with a qualified opinion?
does a qualified opinion always have an “except for” explanation?
is a “basis of modification” paragaraph ALWAYS included when the audit report is modified? even when we have an emphasis of matter paragraph?
There is often a problem with the word ‘modified’.
A modified opinion changes the opinion paragraph and indicates a problem with the FS. A modified report is a change somewhere else in the audit report but the opinion is not affected (eg an emphasis of matter).
1 This would be a modified opinion (not the same as a modified report) as the liability should be disclosed by way of note and hasn’t been.
2 EoM = after opinion. This would rank as a modified report but not a modified opinion.
You could have both EoM and modified opinion, but in relation to different things.
A modified opinion can be:
Qualified: …except for
Adverse: the FS do not show a true and fair viewDisclaimer: we cannot form an opinion.
A basis of qualification/adverse opinion/disclaimer is always included when the opinion is modified and the title of the opinion paragraph is also altered appropriately to alert users that there is a problem.
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