How CA. Sandeep Jain should deal with the issues in the respective audit report of Moon Ltd. and Prime Ltd.?

CA. Sandeep Jain should deal with the issues outlined in the case of Moon Ltd. and Prime Ltd. in the following manner: (i) In case of Moon Ltd.: As per SA 705, “Modifications to the Opinion in the Independent Auditor's Report", the auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements. In the given case of Moon Ltd., there is a trade receivable of 120lakhs outstanding in the financial statement for which there is no chance of recovery as the party has gone bankrupt and is absconding as on date. In addition, the net profit of Moon Ltd. is 250 lakh rupees and Moon Ltd. has not written off the debt despite being communicated. In such circumstances, CA. Sandeep Jain should express an adverse opinion in his audit report because the effects on the financial statements of such non recovery are material and pervasive. (ii) In case of Prime Ltd.: In the present case, CA. Sandeep Jain is unable to obtain sufficient and appropriate audit evidence with respect to inventory of the company, neither the physical verification has been done by the management nor adequate inventory records are being maintained by the Prime Ltd. The audit team is also unable to undertake the physical inventory count and as such the value of inventory could not be verified. Further, inventory constitutes 30% of the total assets of Prime Ltd., which is significant. In the above case, the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. Thus, CA. Sandeep Jain should give a Disclaimer of Opinion. As per Companies Auditors' Report Order 2020 (CARO 2020) dated 25th Feb 2020, the audit report shall include a statement on the following matter: Whether the physical verification of the inventory has been conducted at reasonable intervals by the management and whether, in the opinion of the auditor, the coverage and procedure of such verification by the management is appropriate. In view of the above the auditor should give a qualification in his report narrating the situation.