This question is based on an ACCA question in their Advanced Audit and Assurance Paper P7, June 2012.

Snipe Ltd has in place a defined benefit pension plan for its employees. An actuarial valuation on 31 January 2018 indicated that the plan is in deficit by £10.5 million.

The deficit is not recognized in the statement of financial position. An extract from the draft audit report is given below:

Auditor’s opinion
In our opinion, because of the significance of the matter discussed below, the financial statements do not give a true and fair view of the financial position of Snipe Ltd as at 31 January 2018, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Explanation of adverse opinion in relation to the pension
The financial statements do not include the company’s pension plan. This deliberate omission contravenes accepted accounting practice and means that the accounts are not properly prepared.
Required:
Critically appraise the extract from the proposed audit report of Snipe Ltd for the year ended 31 January 2018.
Note: you are NOT required to re-draft the extract of the audit report.