Nova Ltd.

Nova Ltd. is being audited by R & Co. for the year ended 31 March 2026.

The financial statements for the year ended 31 March 2025 were audited by P & Co., the predecessor auditor.

The financial statements use the corresponding figures approach.

P & Co.’s report for 2025 contained a qualification because the company had not properly valued certain inventory.

During the 2026 audit, R & Co. establishes that:

the inventory was subsequently sold during 2026;
the opening inventory balance included in the 2026 financial statements is materially misstated because the 2025 valuation issue was never corrected;
the corresponding figure presented for 2025 therefore continues to contain the same material misstatement; and
the matter remains relevant to the current year’s financial statements.

The engagement partner makes four statements:

Statement 1: Since the 2025 financial statements were audited by a predecessor auditor, R & Co. has no responsibility to consider the effect of the predecessor’s qualification on the current year’s audit report.

Statement 2: Under the corresponding-figures approach, the auditor’s opinion refers to the current period, but an unresolved matter relating to the corresponding figures may nevertheless affect the current auditor’s report.

Statement 3: Because the prior-year qualification related only to the previous year, R & Co. must reproduce the predecessor auditor’s qualification verbatim in the current auditor’s report.

Statement 4: SA 510 considerations relating to opening balances remain relevant when the prior-period financial statements were audited by a predecessor auditor.

Which combination is correct?

A.

Statements 2 and 4 only, because the current auditor considers the continuing effect of the prior-period matter without automatically reproducing the predecessor’s report.

B.

Statements 1 and 3 only, because the predecessor auditor remains responsible for the prior-period opinion and the current auditor merely refers users to that report.

C.

Statements 2 and 3 only, because the current auditor considers the corresponding figures but must reproduce the predecessor’s qualification whenever the underlying issue remains unresolved.

D.

Statements 1, 3 and 4 only, because SA 510 applies to opening balances but does not affect reporting on corresponding figures audited by another auditor.