Zenith Ltd.

Zenith Ltd. has its complete financial statements audited by P & Co.

The complete financial statements contain pervasive misstatements relating to revenue recognition, resulting in P & Co. expressing an adverse opinion.

Management subsequently prepares summary financial statements from those audited financial statements.

The summary financial statements:

contain substantially less detail than the complete financial statements;
are prepared in accordance with the applicable criteria;
are intended to be distributed to the same users who have access to the audited financial statements; and
do not contain any additional misstatement introduced by management.

P & Co. is engaged to report on the summary financial statements under SA 810 (Revised).

The engagement partner makes the following statements:

Statement 1: Since the auditor’s report on the audited financial statements contains an adverse opinion, it is inappropriate for the auditor to express an opinion on the summary financial statements.

Statement 2: If the summary financial statements are consistent, in all material respects, with the audited financial statements, the auditor may nevertheless express an unmodified opinion on the summary financial statements.

Statement 3: The auditor’s report on the summary financial statements should state that the auditor’s report on the audited financial statements contains an adverse opinion and describe the basis for that adverse opinion.

Statement 4: Since summary financial statements contain less detail than the audited financial statements, omission of disclosures that appear in the complete financial statements necessarily prevents the auditor from reporting on the summary financial statements.

Which ONE of the following is correct?

A.

Statements 1 and 3 only, because an adverse opinion on the audited financial statements results in it being inappropriate to express an opinion on the summary financial statements, while the report must communicate the adverse opinion and its basis.

B.

Statements 2 and 3 only, because consistency with the audited financial statements permits an unmodified opinion on the summary financial statements even where the underlying opinion is adverse.

C.

Statements 1 and 4 only, because an adverse opinion prevents an opinion on the summary financial statements and every omitted disclosure makes the summary statements unsuitable for reporting.

D.

Statements 2 and 4 only, because SA 810 evaluates the summary financial statements independently and requires substantially all significant disclosures appearing in the audited financial statements to be retained.