Obligation of auditor when his opinion is based on related party auditor’s report and legal opinion
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- Last Updated on 25 January, 2022
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As per the provisions of Ind AS 36 (Impairment of Assets), Company should assess indicators of impairment of an asset at the end of the financial year which are internal and external indicators, low market capitalization in comparison to the carrying amount is one of the external indicators.
Practical problem which may arise during the audit of financials
S Ltd. provides an integrated platform with the technical, managerial, financial, and governance framework to support and participate in the highway development programme. The working paper of the auditor of the company shows that the company recorded its investment in shares of associate company A Ltd. which engaged in engineering, procurement, construction of real estate development projects, at cost on the balance sheet date instead of fair value, which was lower than its cost.
The auditors of the associate company provided in their audit report that decline in fair value of shares occur due to loss which was incurred as a result of the suspension of toll collection by order of the High Court and under EOM para provided that the company’s appeal was pending before the Supreme Court against loss which was incurred due to suspension of toll collection and based on a legal opinion, the board relied upon that company will receive compensation, and auditor of associate company provided in its notes that the underlying value of the intangible and other assets is not impaired. Our opinion is not modified in respect of this matter. Also, a legal opinion was obtained by the Company on the order of the high court which was appealed in the supreme court which estimated some benefits accruing to the associate company.
On the basis of management representation which is supported by legal opinion and associate company auditors report, the auditor of the company emphasized the above matter in their audit report and concluded that our opinion is not modified in respect of this matter. Whether the audit opinion made by the auditor is correct? If not, what are the responsibilities that an auditor lacks while performing the audit?
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