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Area IV: Forming Conclusions and ReportingAUDReportingOther Information

CPA · Question 69 · Area IV: Forming Conclusions and Reporting

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material inconsistency between the audited financial statements and the other information included in the annual report. The financial statements are correct, but the other information is incorrect. Management refuses to correct the other information. What should the auditor do?

Answer options:

A.

Issue a qualified opinion on the financial statements.

B.

Issue an adverse opinion on the financial statements.

C.

Include an other-matter paragraph in the auditor's report describing the material inconsistency, or withhold the report/withdraw.

D.

Ignore the inconsistency since the financial statements are correct.

How to approach this question

Other Information (Annual Report): If Financials are Right but Other Info is Wrong -> Unmodified Opinion + Other-Matter Paragraph. (You can't qualify the financials for an error outside the financials).

Full Answer

C.Include an other-matter paragraph in the auditor's report describing the material inconsistency, or withhold the report/withdraw.✓ Correct
If the financial statements are correct but the other information is materially inconsistent and management refuses to correct it, the auditor should communicate with governance and may include an other-matter paragraph in the report describing the inconsistency, withhold the report, or withdraw.

Common mistakes

Qualifying the opinion. The opinion is on the Financial Statements, which are correct.
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