Opaque Pharmaceuticals Ltd. has outstanding long-term receivables of 415 crore as on 31st March 2024, arising from pending insurance claims for…

(a) In accordance with SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report", Emphasis of Matter Paragraph is a paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements. As per SA 706, the objective of the auditor, having formed an opinion on the financial statements, is to draw users' attention, when in the auditor's judgment it is necessary to do so, by way of clear additional communication in the auditor's report, to: - (a) A matter, although appropriately presented or disclosed in the financial statements, that is of such importance that it is fundamental to users' understanding of the financial statements or (b) As appropriate, any other matter that is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report. Further, the auditor shall include an Emphasis of Matter paragraph in the auditor's report provided the auditor would not be required to modify the opinion in accordance with SA 705 as a result of the matter. In the given case of Opaque Pharmaceuticals Ltd., the company has outstanding long-term receivables of 415crore arising from pending insurance claims due to supply chain disruptions, some under legal proceedings and others under negotiation, which management considers fully recoverable and has disclosed in the notes. CA Neha, the auditor, has relied solely on management representations regarding recoverability and has not performed any other audit procedures. Since management representations alone do not constitute sufficient appropriate audit evidence, performing necessary audit procedures may lead the auditor to conclude that a modification of opinion is required. In such circumstances, this matter cannot be included in an Emphasis of Matter paragraph. Therefore, CA Neha should form her opinion by performing necessary audit procedures and obtaining sufficient appropriate evidence. It is only when she concludes that modification of opinion is not required as a result of said matter in terms of SA 705, the said matter may be included in Emphasis of Matter paragraph.