1. Since it became impracticable for CA B, on 31 March, 2024, to attend
physical inventory counting at the warehouse and also became impossible to
perform alternative audit procedures to obtain sufficient appropriate audit
evidence regarding the existence and conditions of inventory, CA B shall:
Options
ATake Management Representation regarding the existence and
valuation of inventory and mention in Emphasis of Matter paragraph.
BRely on GHB Ltd.'s perpetual inventory records as audit evidence and
express unmodified opinion.
COmit altogether the audit procedure of physical inventory counting
from the audit programme because of impracticability.
DModify the opinion in the auditor's report in accordance with SA 705 as
a result of the scope limitation.
✅Option D — Modify the opinion in the auditor's report in accordance with SA 705 as
a result of the scope limitation.
All Options:
ATake Management Representation regarding the existence and
valuation of inventory and mention in Emphasis of Matter paragraph.
BRely on GHB Ltd.'s perpetual inventory records as audit evidence and
express unmodified opinion.
COmit altogether the audit procedure of physical inventory counting
from the audit programme because of impracticability.
DModify the opinion in the auditor's report in accordance with SA 705 as
a result of the scope limitation. ✓
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Detailed Solution & Explanation
To address this question, let's break down the scenario and the options provided to understand why a particular option is the correct answer. The scenario presents a situation where it has become impracticable for the auditor, CA B, to attend the physical inventory counting at the warehouse on 31 March, 2024. Furthermore, it has also become impossible to perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and conditions of inventory. This situation directly impacts the auditor's ability to obtain sufficient appropriate audit evidence, which is a fundamental requirement for expressing an unmodified opinion. Let's examine the options given: Option A suggests taking a management representation regarding the existence and valuation of inventory and mentioning it in an Emphasis of Matter paragraph. While management representations are a part of the audit process, they do not constitute sufficient appropriate audit evidence when it comes to the existence and condition of inventory, especially in a scenario where the auditor cannot perform or rely on alternative procedures. Option B proposes relying on the company's perpetual inventory records as audit evidence and expressing an unmodified opinion. However, this option overlooks the fact that the auditor's inability to verify the inventory through physical observation or alternative means undermines the reliability of the perpetual records for audit purposes. Option C recommends omitting altogether the audit procedure of physical inventory counting from the audit programme because of impracticability. This option is not feasible because the audit of inventory is a critical component of the financial statement audit, and omitting it would significantly impact the auditor's ability to express an opinion on the financial statements. Option D suggests modifying the opinion in the auditor's report in accordance with SA 705 as a result of the scope limitation. This option aligns with the auditing standards, which dictate that when the auditor is unable to obtain sufficient appropriate audit evidence due to a scope limitation, the auditor should consider the implications for the auditor's opinion. In this case, the inability to attend the physical inventory counting and the impossibility of performing alternative procedures constitute a significant scope limitation. Given the scenario and the analysis of the options, the most appropriate course of action for CA B is to modify the opinion in the auditor's report, as this reflects the auditor's inability to obtain sufficient appropriate audit evidence regarding a material aspect of the financial statements. Hence, **Option D** is the correct answer.