Module: | Specialized Audits, Tech & ESG Disclosures
Q80: Consider the following statements regarding the statutory auditor's reporting on Internal Financial Controls over Financial Reporting (ICFR):
1. The auditor is required to express an independent, legally binding opinion on the adequacy and operating effectiveness of the company's ICFR.
2. The ICFR reporting requirement is applicable to both the standalone financial statements and the consolidated financial statements of a company.
3. If the auditor identifies a material weakness in the ICFR, they are legally required to automatically express an adverse opinion on the financial statements themselves.
Which of the above statements is/are incorrect?
2. The ICFR reporting requirement is applicable to both the standalone financial statements and the consolidated financial statements of a company.
3. If the auditor identifies a material weakness in the ICFR, they are legally required to automatically express an adverse opinion on the financial statements themselves.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; the auditor issues a specific, separate opinion on these controls under Section 143(3)(i). Statement 2 is correct; the Guidance Note on ICFR clarifies it applies to the consolidated level as well, mapping the controls of all components.
Statement 3 is incorrect; a material weakness in ICFR results in an adverse opinion on the controls, but the auditor can still issue a clean, unmodified opinion on the financial statements if they performed enough alternative, manual substantive testing to verify that the final numbers are materially correct despite the broken system.
Historical/Related Context: Borrowed directly from the Sarbanes-Oxley (SOX) Act in the US, India implemented ICFR reporting to force corporate management to invest in robust ERP systems and documented approval hierarchies.
Causal Reasoning: A broken cash-register (weak control) does not automatically mean the money was stolen (material misstatement). If the auditor manually counts the cash in the drawer and it matches the expected sales, the financial statements are true and fair, even though the internal control system was severely flawed.