Kunal Mandhania

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Auditing &
Assurance

SA-700
 Types of opinion

Unmodified Modified

Clean Report

Qualified Negative Disclaimer of

SA - 700 report report opinion

SA - 705
 SA – 700 – Forming opinion on F.S

Scope  Deals with

a) Auditors resp. to form a opinion
b) Form & content of auditor’s report
General Purpose Framework
 FRF designed to meet information needs of wide range of users
 Two Types Specific Evaluations for forming opinion
To express his opinion whether F.S in
Fair Presentation Compliance Framework
Framework accordance with applicable FRF i.e.
  
Has strictly follow i. Disclosures  Appropriately
Follow disclosed
requirements the framework
ii. A/c Polices  as per AFRF
from established  iii. A/c Estimates  by Mgt. 
framework Cannot deviate Reasonable
But iv. Information in  Relevant, reliable,
 comparable, understandable.
Can deviate Even for better v. Terminology  Appropriate
 presentation If all complied, issue unmodified
For fair presentation opinion.
E.G  F.S of Banking
E.g F.S of Co.
Companies
•'An auditor is required to make specific
evaluations while forming an opinion in an
audit report."
•State them.
•[Nov. 18 (5 Marks), MTP-April 21]
•The Auditor is fully satisfied with the audit of
an entity in respect of its systems and
procedures and wants to issue a report without
any hesitation. What type of opinion can be
given and give
•[MTP-April 19, May 20; RTP-May 21]
 SA – 700 – Forming opinion on F.S
Contents / Elements of Audit Report
1. Title – Independent Auditor’s Report
2. Addresse – To, members of Co.
3. Opinion Paragraph.
Includes
a) Name of entity
b) Period of Audit
c) Name of F.S. audited
d) Opinion
4. Basis for opinion para
a) Followed S.A.
b) Sec. 143(2) Ref. to Responsibility
c) Independence statement
d) States whether the auditor believes that the audit evidence the auditor has obtained is
sufficient and appropriate to provide a basis for the auditor's opinion.
 SA – 700 – Forming opinion on F.S
Contents / Elements of Audit Report
5. Going Concern Para –As per SA 570
6. Key audit matters (As per SA- 701)
7. Auditors Resp. for Audit of F.S
Mention
a) We can take only reasonable assurance
b) Report whether F.S is free from material misstatement
8. Mgt.’s Resp.
9. Report on other legal and Regulatory requirements [Sec. 143]
 SA – 700 – Forming opinion on F.S
Contents / Elements of Audit Report

10.Date – Can be any date but after date of approval of F.s by mgt
11.Place – City where Audit report is signed
12.Signature
a) Prop firm – Signed in his own name
b) Part Firm/LLp- Sign on behalf of firm
c) Also mention membership no and Firm’s registration no
•The auditor's report shall include a
section, directly following the Opinion
section, with the heading "Basis for
Opinion". Explain what is included in this
"Basis for Opinion" section.
•[RTP-Nov. 19, May 20, Nov. 20]
The auditor’s report shall include a section with a heading “Responsibilities of Management
for the Financial Statements.” SA 200 explains the premise, relating to the responsibilities of
management and, where appropriate, those charged with govenance, on which an audit in
accordance with SAs in conducted. Explain
[RTP-Nov. 18, MTP-April 19, may 20, April 21]

• This section of the auditor's report shall describe management's

responsibility for:
• Preparing the F.S. in accordance with the applicable FRF, and for such
internal control as management determines is necessary to enable the
preparation of F.S. that are free from material misstatement, whether due
to fraud or error; and
• Assessing the entity's ability to continue as a going concern and whether
the use of the going concern basis of accounting is appropriate as well as
disclosing, if applicable, matters relating to going concern. The
explanation of management's responsibility for this assessment shall
include a description of when the use of the going concern basis of
accounting is appropriate.
 The requirements of SA 700 are aimed at addressing an
appropriate balance between the need for consistency and
comparability in auditor reporting globally. Explain.
[RTP - May 21]
• Need for consistency and comparability in auditor reporting globally:
1. The requirements of SA 700 are aimed at addressing an appropriate balance
between the need for consistency and comparability in auditor reporting
globally and the need to increase the value of auditor reporting by making the
information provided in the auditor's report more relevant to users.
2. This SA promotes consistency in the auditor's report but recognizes the need
for flexibility to accommodate particular circumstances of individual
jurisdictions. Consistency in the auditor's report, when the audit has been
conducted in accordance with SAs, promotes credibility in the global
marketplace by making more readily identifiable those audits that have been
conducted in accordance with globally recognized standards.
3. It also helps to promote the user's understanding and to identify unusual
circumstances when they occur.
 SA 705 MODIFIED OPINION
Meaning Which opinion to give Changes in Audit Report
Reasons Material but Material as well
Any opinion not pervasive as pervasive 1. Opinion in opinion
other than (Spread out) para
clean report is 2. Name of opinion
Material Qualified Adverse /
modified Misstatement Negative para will be
report in FS qualified /
Eg
Unable to Qualified Disclaimer of
negative /
1. Qualified obtain Audit opinion Disclaimer of
report evidence opinion
2. Negative 3. Name of basis of
report
opinion para will
3. Disclaimer of be basis for Q / N /
Opinion DOO and give
reasons and effect
of Modification
•What an auditor should state in "Basis for
opinion" section of auditor's report and
when the auditor modifies the opinion on
the financial statements, what
amendments he should make in this
section?
•[Jan. 21 (4 Marks)]
 Opinion Section
Wordings of Opinion:
• Qualified
Except for eth effects of matters prescribed in ‘Basis of Qualified Opinion’
section, the F.S. have been prescribed fairly in all material respects in
accordance with [applicable FRF].
• Adverse
In auditor’s opinion because of significance of the matters described in ‘Basis
of Adverse Opinion’ section, the F.S. does not give a true and fair view of ______
in accordance with [applicable FRF].
• Disclaimer
because of significate of matters described in the ‘Basis for Disclaimer of
Opinion’ section, the auditor has not been able to obtain sufficient
appropriate audit evidence to provide a basis for audit opinion on F.S.
LIST OF SITUATIONS / EXAMPLES Of Qualified
opinion
1. Depreciation is not charged.
2. Interest wrongly capitalized with fixed assets.
3. Long term investments are not properly valued as
per FRF
4. Revenue expense shown as receivables
LIST OF SITUATIONS / EXAMPLES Of Adverse
opinion
1. Going concern assumption is inappropriate but still
it is followed, no adjustment for historical cost to
realizable and payable value
2. Contractor followed completion method but AS 7
specifies percentage completion method.
3. Major subsidiary is not consolidated with holding
company financial statements.
4. Company prepares financial statements as per cash
basis, going against accrual principle
5. Combination of points mentioned in qualified
affecting major part of financial statements
(pervasive)
LIST OF SITUATIONS / EXAMPLES Of Disclaimer of
opinion
1. Books of accounts and related documents are seized by
government authorities and there is no other means to get
them.
2. Only Xerox copies are available but no other reliable
evidence to support it.
3. Limitation imposed by management has possible
pervasive effect on financial statements
4. Books of accounts got destroyed due to fire , flood , storm ,
etc
 SA 706 Emphasis of Matter Para & Other Matter Para
EMPHASIS OF MATTER PARA (EOM)
Meaning Examples where used Other Important Points
Used where 1. Early application of AS  disclosed by 1. Placed in Audit report
although Management  after ‘Basis’ Para
auditor doesn’t 2. Doubt about Going Concern  disclosed by before or after ‘KAM’
modify report assumption Management Para
on such matter
3. Material Change in  Disclosed by 2. Use EOM para where
 Accounting policy Management
on such matter
But highlight it 4. Uncertainty over pending  Disclosed by
in this para to Litigation Management - He neither modifies
bring attention 5. Major amalgamation during the year
report
of user of FS on - Nor use KAM Para
6. Many prior period items
such matter
7. Subsequent event


For their better
understanding Occurring between Balance Sheet date & date of
Audit Report
 SA 706 Emphasis of Matter Para & Other Matter Para
OTHER MATTER PARA (OM)
Meaning Examples where used Placed where
Matter other After EOM Para (if EOM
1. Audit not conducted in present or after KAM para
than those in FS previous year (SA 510)

2. Someone else did audit
Relevant to during previous year
-User’s (SA 510)
understanding
3. Audit of branch done by
-Auditors
responsibility
someone else (SA 600)
4. Reporting on distribution
or use of audit report
 SA-701 Key audit matters (KAM)
Meaning Where How to Other IMP Pts.
required determine KAM
Matters 1) Higher
1) Listed Co. RMM 1) Communicate in
 1) Should be auditors report
2) If required from 2) Significant under KAM para
In auditors by law matters risk with
judgement communica identified a) Separate heading
 3) Optional tion to 3) Area b) Reason of
a) If entity TCWG requiring consideration
Were of is of + significant
most c) How matter was
significanc significa 2) Require mgt. addressed.
e in audit nt public significant judgement.
interest. 2) Where KAM not
auditor 4) Recent required
 E.g. attention significant
Of F.S. of Banks, + event
a) Matter on which
F.I. report modified
current 3) Most occurred b) If disclaimer- then
period b) Public significant during omit KAM para
sector period (SA 705)
entites
Other important points
1. If matter highlighted in KAM no need to include it in EOM / OM para
2. Purpose – i) Enhance communication value of report for intended users
ii) Greater transparency
3. Difference between KAM & EOM para
i) Significant – EOM para
Most significant – KAM Para
ii) KAM Para mandatory even if there is no KAM but EOM Para is included
in Auditor’s Report only when there is any matter to emphasize
4. Communicating KAM is not a Substitute to
i. Disclosure in FS
ii. Modified Opinion
iii. Material uncertainty about Going Concern Reporting
iv. Separate opinion individually
 SA 710 – Comparative Information
corresponding figures & Comparative F.S

Auditors 2 Approaches (depends upon law /terms of eng )

Meaning
Procedure
 
1) Included as
Amounts & AFRF Corresponding Comparative F.S
Disclosures 2) CI agrees with Figure approach approach
amt and
 disclosures as Where amt. & disclosures of prior Where amt. & disclosures of prior
per prior 1. Meaning period are
period period
Included in a) Included as a integral part of 
3) A/c policies C.Y. F.S
current F.S consistently b) As read only
Included as comparison with C.Y. F.S
applied and if
 not then
disclosed 2. Used where Last year infn just for reference Last year infn more detailed
Related to 4) In case of
Is comparable with F.S of C.Y.
suspicion 3. Level of As per its relevance to the current
Previous about M.M Information period figures
year in ,perform
additional
accordance procedure 4. Auditor’s Only on current period except On both C.Y & P.Y
with AFRF 5) Obtain W.R opinion Prior period items
where a) Contains Modification
required
b) M.M exist
c) Not audited
 Decisions

Corresponding Figure approach Comparative F.S approach

Prior period M.M still exists Prior period 1. Previous opinion differs
AR was where F.S not audited from current opinion
modified previously 
unmodified 
 Disclose reason in ‘OM’ para
Matter of opinion was Mention O.M
modification issued para 2. Prior period F.S audited by
unresolved Predecessor auditor
+

Follow
Modifed report procedures of State in OM para
+ SA 510
Give ref to both
periods