INTERNATIONAL STANDARD ON AUDITING 705

MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDIOTR’S REPORT

Modification to the Auditor’s Opinion

No Yes

Report as per ISA 700 Report as per ISA 705

ISA 705

SCOPE: INDEPENDENT AUDITORS RESPONSIBILITY TO ISSUE

AN APPROPRIATE AUDIT REPORT

1. When the Auditor concludes that 2. How the form and content of
a Modification to the Auditor’s & the auditor’s report is affected
Opinion on the Financial when auditor express
Statements is necessary modification

Types of Modified Opinion?

1. Qualified 2. Adverse 3. Disclaimer

Which type of Opinion is appropriate?

Nature of Matter giving rise to the modification

&

Auditor’s Judgement about pervasiveness of the Matter

 OBJECTIVE: TO EXPRESS MODIFIED OPINION ON FINANCIAL STATEMENTS

WHEN

1. When the Auditor concludes

that a Modification to the
Auditor’s Opinion on the
Based on AE obtained, Financial State
concludes that FS are not Or i
ments Unable to obtain SAAE
free from MM s necessary (Scope Limitation)
(Material Misstatement)

WHAT IS MISSTATEMENT

A Difference btw the reported amount, classification, presentation or disclosure of a FS item and the amount, classification,
presentation or disclosure that is required for the item in accordance with AFRF

MATERIAL MISSTATEMENT MAY ARISE:

A) Appropriateness of selected B) Application of selected C) Appropriateness or adequacy of disclosure

accounting policies
 AP is not consistent with the
AFRF
 FS do not represent the
underlying transaction and
events in a manner that
achieves fair presentation
accounting policy
 Not applied consistently
 Due to the method of
application of selected
accounting policies
(unintentional error
in the FS
 Do not include all disclosure required by
AFRF
 Not presented in a/c with the AFRF
 Do not provide disclosure necessary to
achieve fair presentation

If the impact is MATERIAL +

If the impact is material – PERVASIVE

QUALIFIED OPINION ADVERSE OPINION

What is QUALIFIED OPINION? What is ADVERSE OPINION?

Except for the effect of the matter described in Because of the significance of the matter discussed
basis for qualified opinion, the FS prepared in in the basis for adverse opinion, the FS is not
accordance with IFRS prepared in accordance with IFRS
 SCOPE LIMITATION MAY ARISE:

A) Circumstances beyond B) Circumstances relating to C) Limitation imposed by the

the control of the entity nature or timing of auditors management
work
1. Entity’s accounting 1. Prevent auditor from
record has been 1. Timing of the auditor observing inventory count
destroyed appointment is such that 2. Prevent auditor from
2. Accounting record unable to observe physical sending confirmation
seized by Govt. observation
authorities 2. Substantive procedure cannot
provide SAAE
3.

If the impact is MATERIAL +

If the impact is material PERVASIVE

QUALIFIED OPINION DISCLAIMER OPINION

If the impact is material If the impact is MATERIAL +

PERVASIVE
Except for the effect of the matter
described in basis for qualified Because of the significance of the
opinion, the FS prepared in matter described in the basis for
accordance with IFRS disclaimer opinion, we have not been
able to obtain SAAE to provide a
basis for an audit opinion.

Important Note: An inability to perform a specific procedure does not constitute a limitation on the
scope of the audit if the auditor is able to obtain SAAE by performing alternative audit procedures. If
this is not possible then auditor shall express qualified or disclaimer as applicable.
Limitation imposed by the management may have other implications for the audit, such as for the
auditor’s assessment of fraud risk and consideration of engagement continuance
 WHAT IS PERVASIVE?

A term used in the context of:

 Misstatement, to describe the effect on the financial statement of misstatement
OR
 Possible effect on the financial statements of misstatements, if any, that are undetected due
to the inability to obtain SAAE

Pervasive effect on the FS are those that, in the auditors judgement

Are not confined to specific In relation to disclosures, are

If so confined, represent or could
elements, accounts or item of FS fundamental to users
represent substantial portion of FS
understanding of FS
 CONSEQUENCES of an INABILITY to OBTAIN SAAE Due to management imposed
limitation after the audit has accepted engagement

If after accepting the If unable to obtain SAAE the audit shall determine the following
If management implications:
engagement, the
refuse –  If possible effect is material – auditor shall qualify opinion
auditor becomes
communicate to
aware that  If possible effect is material and pervasive
TCWG and
management has o Withdraw if withdraw is possible under applicable law
determine
imposed a limitation or regulation. The practicality of withdrawing from the
whether it is
on the scope of audit audit may depends on the stage of completion of the
possible to
that the auditor engagement at the time management imposes the
perform
consider will likely to scope limitation. If the auditor withdraws, before
Alternative
express a qualified or withdrawing communicate to TCWG any misstatement
procedures to
disclaimer – Shall identified during the audit that would have given rise
obtain SAAE
request the to modification.
management o If the auditor has substantially completed the audit,
remove limitation the auditor may decide to complete the audit to the
extent possible, disclaim an opinion and explain the
scope limitation in the basis for disclaimer opinion
o If withdrawal is not possible or practicable, disclaim an
opinion on the FS

When the auditor concludes that withdrawal from the audit is

necessary because of a scope limitation, there may be a
professional, legal or regulatory requirement for the auditor to
communicate matters relating to the withdrawal from the
engagement to regulators or the entity’s owners.

Other Considerations Relating to an Adverse Opinion or Disclaimer of Opinion

When the auditor considers it necessary to express an adverse opinion or disclaim an opinion on the
financial statements as a whole, the auditor’s report shall not also include an unmodified opinion with
respect to the same financial reporting framework on a single financial statement or one or more
specific elements, accounts or items of a financial statement. To include such an unmodified opinion
in the same report in these circumstances would contradict the auditor’s adverse opinion or
disclaimer of opinion on the financial statements as a whole.
 Form and content of Auditors report when the opinion is modified

Content of Changes due to modification

audit report
Basis for  Basis for qualified, adverse or disclaimer
opinion  If MM – include in the basis for qualification paragraph a description and quantification of the
financial effect (effect on income tax, income before tax, net income and equity) of the
misstatement unless impracticable. If not practicable, the auditor shall state this fact in the
basis for modification paragraph
 If MM that relates to narrative disclosure – explain how disclosure are misstated
 If MM relates to non-disclosure – discuss the non-disclosure with TCWG, describe in the
basis for modification paragraph the nature of omitted information, unless prohibited by law or
regulation, include the omitted disclosure provided it is practicable (not prepared by
management or not readily available to auditor and in auditors judgement disclosure would be
voluminous in relation to the report) and auditor has obtained SAAE about the omitted
information
 If modification result from an inability to obtain SAAE, include reason for inability
 Even if adverse or disclaimer, the auditor shall describe in the basis for modification
paragraph the reason for any other matters of which the auditor is aware that would have
required a modification to the opinion and the effects thereof
 For qualified or adverse opinion – audit evidence obtained is sufficient and appropriate to
provide a basis for adverse / qualified opinion.
Opinion  Qualified opinion, Adverse opinion, or Disclaimer opinion. Not appropriate use phrase such as
paragraph “ with the foregoing explanation or “ subject to”
 Qualified opinion due to MM: Except for the effect of the matter described in Basis for
qualified opinion Fs gives true and fair view
 Qualified opinion due to scope limitation – Except for the possible effect
 Adverse opinion – because of the significance of the matter described in basis for adverse
opinion the Fs do not give true and fair view
 Disclaimer - Because of the significance of the matter(s) described in the Basis for Disclaimer
of Opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion; and, accordingly, the auditor does not
express an opinion on the financial statements. + Change “ Financial statements has been
audited to auditor was engaged to audit the FS”
Auditors  Disclaimer: When the auditor disclaims an opinion due to an inability to obtain sufficient
Responsibility appropriate audit evidence, the auditor shall amend the description of the auditors
responsibility to include only the following
 A statement that auditor’s responsibility is to conduct an audit of the entity’s financial
statement in a/c with ISA and to issue and auditor’s report;
 A statement that, however because of the matter described in the basis for disclaimer of
opinion section, the auditor was not able to obtain SAAE to provide a basis for an audit
opinion on the FS; and
 The statement about auditor’s independence and other ethical responsibilities
No need to include KAM

Communication with Those Charged with Governance

When the auditor expects to modify the opinion in the auditor’s report, the auditor shall communicate with those charged with governance
the circumstances that led to the expected modification and the proposed wording of the modification.
Communicating with those charged with governance the circumstances that lead to an expected modification to the auditor’s opinion and the
proposed wording of the modification enables:
(a) The auditor to give notice to those charged with governance of the intended modification(s) and the reasons (or circumstances) for the
modification(s);
(b) The auditor to seek the concurrence of those charged with governance regarding the facts of the matter(s) giving rise to the
expected modification(s), or to confirm matters of disagreement with management as such; and
(c) Those charged with governance to have an opportunity, where appropriate, to provide the auditor with further information and
explanations in respect of the matter(s) giving rise to the expected modification(s).
QUALIFIED OPINION DUE TO SCOPE LIMITATION
QUALIFIED OPINION MATERIAL MISSTATEMENT
Qualified Opinion Material Misstatement
ADVERSE - MISSTATEMENT
Disclaimer Scope limitation