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Inter Audit Concept Book - Sample PDF

SA 705 outlines the auditor's responsibilities for modifying opinions in their reports when financial statements (FS) are not free from material misstatements (MM) or when sufficient appropriate audit evidence (SAAE) cannot be obtained. The types of modified opinions include Qualified, Adverse, and Disclaimer, depending on the materiality and pervasiveness of the issues identified. The document also emphasizes the importance of communication with those charged with governance (TCWG) regarding any expected modifications to the opinion.

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53 views2 pages

Inter Audit Concept Book - Sample PDF

SA 705 outlines the auditor's responsibilities for modifying opinions in their reports when financial statements (FS) are not free from material misstatements (MM) or when sufficient appropriate audit evidence (SAAE) cannot be obtained. The types of modified opinions include Qualified, Adverse, and Disclaimer, depending on the materiality and pervasiveness of the issues identified. The document also emphasizes the importance of communication with those charged with governance (TCWG) regarding any expected modifications to the opinion.

Uploaded by

vedantgsnarale27
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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SA 705 – Modifications to Opinion in Independent Auditor’s Report

Objective of Auditor Definition of Pervasive


To express appropriately modified opinion when - A term used to describe effects on FS of
• Auditor concludes, FS are not free from MM misstatements or possible effects on FS of
• Auditor is unable to obtain SAAE to misstatements that are undetected due to
conclude that FS are free from MM inability to obtain SAAE. Pervasive effects on FS
are those that, in auditor’s judgement -
Decision regarding which type of modified • Are not confined to specific a/c of FS
opinion is appropriate depends upon - • If so confined, represent a substantial
• Nature of matter giving rise to modification proportion of FS
• Auditor’s judgement about pervasiveness of • For disclosures, are fundamental to users’
effects of matter on FS understanding of FS

Types of Modifications/Modified Opinion


Qualified • When auditor obtains SAAE to conclude that misstatements are material, but not
Opinion pervasive to FS or
• Auditor is unable to obtain SAAE, but he concludes that possible effects on FS
of undetected misstatements could be material but not pervasive
Adverse Auditor shall express adverse opinion when he obtained SAAE, concludes that
Opinion misstatements are both material and pervasive to FS
Disclaimer Auditor shall disclaim an opinion when he is unable to obtain SAAE and he concludes
of Opinion that possible effects on FS of undetected misstatements could be both material &
pervasive

Nature of Matter Giving Rise Auditor’s Judgement about Pervasiveness of Effects on FS


to Modification Material but not Pervasive Material and Pervasive
FS are materially misstated Qualified opinion Adverse opinion
Inability to obtain SAAE Qualified opinion Disclaimer of opinion

Inability to Obtain SAAE Due to Mgt Imposed Limitation after Auditor Has Accepted
Engagement
• If, after accepting engagement, Mgt has imposed limitation on scope of audit, auditor shall request
Mgt to remove limitation
• If Mgt refuses, auditor shall communicate to TCWG & determine if it is possible to perform
alternative procedures to obtain SAAE
• If auditor concludes that possible effects of undetected misstatements could be material but not
pervasive, he shall qualify opinion or
• If auditor concludes that possible effects of undetected misstatements could be both material &
pervasive, he shall –
o Withdraw, if possible, under L&R
o If withdrawal is not possible before issuing report, disclaim opinion on FS
• If auditor withdraw, before withdrawing, communicate to TCWG any misstatement identified
during audit that would have given rise to modification of opinion

#Hum_CA_Banenge Ankush Chirimar (AIR 5,6,32)


SA 705
Form & Content of Report When Opinion is Basis for Opinion
Modified When auditor modifies opinion, auditor shall -
Auditor’s Opinion • Amend heading “Basis for Opinion” to “Basis
When auditor modifies opinion, he shall use for Qualified Opinion,” “Basis for Adverse
heading “Qualified Opinion,” “Adverse Opinion,” or Opinion,” or “Basis for Disclaimer of Opinion”
“Disclaimer of Opinion,” for Opinion section • Include a description of matter giving rise
to modification
Qualified Opinion • Auditor shall also include quantification of
• Auditor shall state that, “except for effects financial effects of misstatement. If not
of matter described in Basis for Qualified practicable, auditor shall so state
Opinion”
• When modification arises from inability to If there is MM of disclosures, auditor shall
obtain SAAE, auditor shall use corresponding include explanation of how disclosures are
phrase “except for possible effects of misstated. If there is MM for non-disclosure of
matter(s) ...” for modified opinion info required to be disclosed, auditor shall -
• Discuss non-disclosure with TCWG
Adverse Opinion • Describe in Basis for Opinion section, nature
When auditor expresses adverse opinion, auditor of omitted info
shall state that, “Because of significance of • Unless prohibited by law, include omitted
matters described in Basis for Adverse Opinion - disclosures, if it is practicable & auditor has
• When fair presentation framework - FS do obtained SAAE for omitted info
not present fairly (or give true & fair view
of) If modification results from inability to obtain
• When compliance framework - FS are not SAAE, auditor shall include reasons for that
prepared, in all material respects inability. When auditor disclaims opinion, report
shall not include -
Disclaimer of Opinion • Statement about whether SAAE is obtained
When auditor disclaims opinion, auditor shall - • Reference to auditor’s responsibilities
• State that auditor does not express opinion section
• State that auditor is not able to obtain • Even if auditor has expressed adverse or
SAAE to provide basis for opinion disclaimer of opinion, he shall describe other
• Amend statement which indicates that FS matters of which he is aware that would have
have been audited, to state that auditor was required modification to opinion & its
engaged to audit FS effects

Description of Auditor’s Responsibilities When Auditor Disclaims Opinion - to include only -


• Statement that auditor’s responsibility is to conduct audit of FS as per SAs
• Statement that auditor was not able to obtain SAAE to provide basis for opinion
• Statement for independence & other ethical responsibilities

Communication with TCWG


When auditor expects to modify opinion, auditor shall communicate with TCWG, circumstances that
led to expected modification & wording of modification

#Hum_CA_Banenge Ankush Chirimar (AIR 5,6,32) Page |1.32

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