Question：Eddie Electricals is a small limited liability wholesaler supplying a variety of electrical goods to retail outlets. The company's managing director and major shareholder, Mr Sprat, is closely involved in the day-to-day running of the company. The auditor is satisfied that the accounting system and associated internal controls are reasonable for a company of its size and type. The auditor has sought and obtained written representations from management as to the completeness and correctness of the recorded transactions. He considers that these representations are acceptable in the light of the evidence obtained from his substantive testing of transactions and analytical procedures, including scrutiny of costs and margins.
What form of audit opinion should be issued?
A. Unmodified but with an 'emphasis of matter' paragraph drawing attention to the control limitations in a small company such as Eddie Electricals and the need to rely on management assurances.
B. Unmodified.
C. Qualified-inability to obtain sufficient appropriate audit evidence, on the grounds that the auditor has not obtained all the information and explanations necessary, as required by law, to satisfy himself as to the completeness of the accounting records.
D. Qualified-inability to obtain sufficient appropriate audit evidence, on the grounds that it has been necessary to accept management assurances.
The correct answer is:Unmodified.
Under ISA 700 Forming an opinion and reporting on financial statements an unmodified opinion will be appropriate as the auditor has obtained satisfactory evidence to corroborate written representations by analytical procedures and other substantive work. No reference should be made to the representations because any such reference might be misinterpreted as a form of modification.
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