ACCA AA · Chapter 13 · Question 3 of 12
Draft financial statements of Tumbril Co show profit before tax of $2.0 million and total assets of $15 million. Inventory is overstated by $500,000 and management refuses to adjust. The auditor concludes the misstatement is material but not pervasive. What opinion should be given?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Qualified opinion
Explanation
The misstatement is 25% of profit before tax ($500,000 / $2.0m) and 3.3% of total assets, so it is material. As it is confined to inventory and does not affect the financial statements as a whole, it is not pervasive. Under ISA 705 a material but not pervasive misstatement leads to a qualified 'except for' opinion.
More Misstatements and the auditor's report MCQs
- Q5The auditor is unable to attend the inventory count and cannot obtain sufficient appropriate evidence about inventory by alternative…
- Q6Under ISA 705, which of the following would NOT make the effects of a misstatement pervasive?
- Q7Which situation would lead the auditor to disclaim an opinion under ISA 705?
- Q8Which of the following best describes when an Emphasis of Matter paragraph is used under ISA 706?
- Q9Under ISA 701, from which matters does the auditor select key audit matters?