Audit opinion - Qualification, Emphasis or Mere disclosure?

NOTE : Below case is not relevant to the UK jurisidction and International Auditing Standards have been considered in auditing and IFRS considered for preparation of financial statements




Thre is a JV between company X and Y. The JV has booked Commission payalbe to X in the financial statements though Y has problems in accepting it (that is to do with contractual issues). However, when financials were sent to X for signing, they signed it and added additional note on the financials about payment of (disputed) commission [they did not mention 'disputed' word]. Please note that there is some (undisputed) commission which has been regularly paid to X.


Audit opinion


A big 4 audit firm is considering qualification instead of emphasis based on ‘scope limitation’. The reason for scope limitation is the fact that shareholders’ agreement stipulate that the financial statements should be unanimously signed by both parnters. Big 4 also says that if X gives clean copy of signed financials then everything is fine and they will issue clean opinion.





Can Y have following points as defence:


1)- It is not a point of qualification as this commission has been properly booked and there is no accounting rectification/error or correction require

2) The dispute regarding payment of commission is an internal issue between partners and could only attract disclosure as


a)   The business is a going concern

b)   X never refused to sign the financials, so this reflects their acceptance of the financial statements

c)   The disclosure of commission payable is subject to further discussion between the management and normally delay of such payments should not result in qualification

d) Apart from this commission, other routine commission payments to X have been made regularly so this reflects continuity of business partnership with a view to settle this commission payment


3) Besides that it is not clear how Big 4 is treating this as ‘scope limitation’ as they have been able to audit all sections relating to commission. The scope limitation only comes to play when Audit firm could not obtain an audit evidence which is not the case here.