PQR Motors Ltd., a listed entity engaged in the manufacture, and sale of automobiles and related parts has prepared its annual financial statements…
CA Final · Advanced Auditing, Assurance and Professional Ethics · PYQS · May 2025
PQR Motors Ltd., a listed entity engaged in the manufacture, and sale of automobiles and related parts has prepared its annual financial statements for the financial year 2024-25. The company's management is also responsible for preparing other information, which includes: (1) Annual Report: A Director's Report and Management Discussion & Analysis (MD&A) prepared by the management.A Corporate Social Responsibility (CSR) report highlighting the company's initiatives and outcomes. (2) Chairman's Message: A message from the chairman discussing the company's financial performance and strategic outlook. (3) Future Projections: Forward-looking statements in the annual report about anticipated growth in revenue and expansion plans. The Statutory auditors, M/s ST & Co., Chartered Accountants, have completed its audit of the financial statements and prepared the auditor's report. During the course of the audit, the following circumstances arise: The Director's Report and MD&A are finalized and provided to the auditor before the date of the auditor's report.The Chairman's Message and Future Projections are not finalized but are expected to be included in the annual report, which will be released after the auditor's report is issued. Issues Identified: (1) In the MD&A, M/s ST & Co., noted a misstatement regarding the company's claim of achieving a 20% reduction in production costs. Audit evidence suggests the reduction was only 10%. (2) The Chairman's Message, which is yet to be reviewed, contains optimistic revenue projections that appear inconsistent with the historical growth trend. Answer the following with reference to the relevant Standard on Auditing: (i) What should M/s ST & Co., include in the "Other Information" section of the auditor's report for PQR Motors Ltd.? (ii) If management does not correct the identified misstatement in the MD&A, even after the same was brought to their attention, what should M/s ST & Co. report under the "Other Information" section? (5 Marks)
Suggested Answer and Working Notes:
(i) As per SA 720 (Revised), “The Auditor's Responsibilities Relating to Other Information", the auditor is required to report on "Other Information" in the auditor's report for listed entities. "Other Information" refers to financial and non-financial information (other than financial statements and the auditor's report thereon) included in an entity's annual report. In the "Other Information" section of the auditor's report, the following should be included: A statement that management is responsible for the other information included in the annual report.Identification of other information obtained: The Director's Report and MD&A have been obtained prior to the date of the auditor's report.Mention of other information expected to be obtained later (e.g., Chairman's Message and Future Projections)A statement that the auditor's opinion does not cover the other information, and the auditor does not express any form of assurance conclusion on it.A description of the auditor's responsibilities relating to reading, considering, and reporting on the other information as per SA 720.A statement on the results of the auditor's review of the other information: If no misstatement is identified, a statement to that effect. If a material misstatement is identified, a description of the uncorrected misstatement (as applicable). (ii) As per SA 720 (Revised), if the auditor identifies a material misstatement in the other information and management refuses to correct it, M/s ST & Co. shall report the uncorrected misstatement in the "Other Information" section as: We have identified a material misstatement in the MD&A regarding the company's claim of a 20% reduction in production costs. However, based on our audit evidence, the reduction was only 10%.
Topics: Standard on Auditing (SA)
Related Questions in this Topic
- While assessing the impact of uncorrected misstatements in the audit of Super Builders Private Limited, Mr. Mahavir enco...
- CA Arjun, CA Bharat and CA Chirag have been appointed as joint auditors of BCA Ltd., a company having manufacturing unit...
- CA Puneet, engagement partner for the audit of a listed company, decided to use the work of the company's internal audit...
- Narayan & Co. is the statutory auditor of Joy Ltd., a company engaged in the tours and travel business. During the audit...
- Raja & Co., Chartered Accountants, are the statutory auditors of Rani Ltd., a listed company, for the year ended 31 Marc...