What Circumstances Meet the Condition that the Auditor is Unable to Obtain Sufficient Appropriate Audit Evidence ?

The auditor’s inability to obtain sufficient appropriate audit evidence (also referred to as a limitation on the scope of the audit) may arise from :

1. Circumstances beyond the control of the entity;
2. Circumstances relating to the nature or timing or the auditor’s work; or
3. Limitations imposed by management

An inability to perform a specific procedures does not constitute a limitation on the scope of the audit if the auditor is able to obtain sufficient appropriate audit evidence by performing alternative procedures.

Examples of circumstances beyond the control of the entity include when :

1. The entity’s accounting records have been destroyed
2. The accounting records of a significant component have been seized indefinitely by governmental authorities

Examples of circumstances relating to the nature of timing of the auditor’s work include when :

1. The entity is required to use the equity method of accounting for an associated entity, and the auditor is unable to obtain sufficient appropriate audit evidence about the latter’s financial information to evaluate whether the equity method has been appropriately applied
2. The timing of the auditor’s appointment is such that the auditor is unable to observe the counting of the physical inventories
3. The auditor determines that performing substantive procedures alone is not sufficient, but the entity’s controls are not effective

Examples of an inability to obtain sufficient appropriate audit evidence arising from a limitation on the scope of the audit imposed by management include when :

1. Management prevents the auditor from observing the counting of the physical inventory
2. Management prevents the auditor from requesting external confirmation of specific account balances.

Source : IAS 705 – Modifications to the Opinion in the Independent Auditor’s Report paragraphs A8 - A12