The auditors of ABC Ltd issued an adverse opinion on the financial statements of the company for the year ended 31 December 2017. This was due to the fact that management could not make available the cash book, general ledger and debtors ledger to the auditors for examination.
Some of the engagement team members may not agree to the issue of an adverse opinion and are suggesting an unmodified report with an emphasis of matter paragraph.
Required:
Comment on the action of the auditors to issue an adverse opinion. (10 marks)
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Adverse opinion is issue where there is disagreement between the auditor and the client on issues such as
- Inappropriate accounting policies.
- Regarding fact or amount (example failure to provide a material bad debt )
- Compliance with legislation or other requirements.
- If the above issues are found to be pervasive, then the auditor can give an adverse opinion.
- In the case under consideration, there is a pervasive uncertainty relating to the scope of the audit. The unavailability of the cash book, general ledger and debtor’s ledger will have an impact so great to render the financial statement as a whole meaningless. From the above, the auditors should have given a disclaimer of opinion.
- The issues at stake led to limitations of scope of the auditors work.
- Adverse opinion is therefore not appropriate in these circumstances.
(Any 5 points)