Objectives

The objectives of an auditor, in accordance with ISA

700 Forming an Opinion and Reporting on Financial
Statements, are:
to form an opinion on the financial statements based
upon an evaluation of their conclusions drawn from
audit evidence; and
to express clearly that opinion through a written
report.
Elements/contents of audit report ISA700
Title.
The auditor’s report shall have a title that clearly
indicates that it is the report of an independent
auditor.
Addressee
The auditor’s report shall be addressed, as appropriate,
based on the circumstances of the engagement.
Auditor’s Opinion
The first section of the auditor’s report shall include the
auditor’s opinion, and shall have the heading
“Opinion.”
Going Concern
Where applicable, the auditor shall report in
accordance with ISA 570
Key Audit Matters
The auditor shall communicate key audit matters in the
auditor’s report in accordance with ISA 701.
or
When the auditor is otherwise required by law or
regulation or decides to communicate key audit
matters in the auditor’s report, the auditor shall do so
in accordance with ISA 701.
Responsibilities for the Financial Statements
The auditor’s report shall include a section with a heading
“Responsibilities of Management for the Financial
Statements.” The auditor’s report shall use the term that
is appropriate in the context of the legal framework in
the particular jurisdiction and need not refer specifically
to “management”. In some jurisdictions, the appropriate
reference may be to those charged with governance.

Auditor’s Responsibilities for the Audit of the

Financial Statements
The auditor’s report shall include a section with the
heading “Auditor’s Responsibilities for the Audit of the
Financial Statements.
Other Reporting Responsibilities
If the auditor addresses other reporting responsibilities in
the auditor’s report on the financial statements that are
in addition to the auditor’s responsibilities under the
ISAs, these other reporting responsibilities shall be
addressed in a separate section in the auditor’s report
with a heading titled “Report on Other Legal and
Regulatory Requirements” or otherwise as appropriate
to the content of the section, unless these other
reporting responsibilities address the same topics as
those presented under the reporting responsibilities
required by the ISAs in which case the other reporting
responsibilities may be presented in the same section as
the related report elements required by the ISAs.
Name of the Engagement Partner
The name of the engagement partner shall be included in
the auditor’s report for audits of complete sets of
general purpose financial statements of listed entities
unless, in rare circumstances, such disclosure is
reasonably expected to lead to a significant personal
security threat.

In the rare circumstances that the auditor intends not to

include the name of the engagement partner in the
auditor’s report, the auditor shall discuss this intention
with those charged with governance to inform the
auditor’s assessment of the likelihood and severity of a
significant personal security threat.
Signature of the Auditor
The auditor’s report shall be signed.
The auditor’s report shall bear the name the location in
the jurisdiction where the auditor practices.
Date of the Auditor’s Report
The auditor’s report shall be dated no earlier than the
date on which the auditor has obtained sufficient
appropriate audit evidence on which to base the
auditor’s opinion on the financial statements,
including evidence that: (a) All the statements that
comprise the financial statements, including the
related notes, have been prepared; and (b) Those with
the recognized authority have asserted that they have
taken responsibility for those financial statements.
Auditor’s Report Prescribed by Law or Regulation.
If the auditor is required by law or regulation of a specific
jurisdiction to use a specific layout, or wording of the
auditor’s report, the auditor’s report shall refer to
International Standards on Auditing only
 Forming an opinion
The auditor forms an opinion on whether the financial
statements are prepared, in all material respects, in
accordance with the applicable financial reporting
framework.
In order to do that they must conclude whether they have
obtained reasonable assurance about whether the financial
statements as a whole are free from material misstatement
(whether due to fraud or error).
 In particular the auditor should evaluate
whether:
the financial statements adequately disclose the
significant accounting policies;
the accounting policies selected are consistently applied
and appropriate;
accounting estimates are reasonable;
information is relevant, reliable, comparable and
understandable;
the financial statements provide adequate disclosures to
enable the users to understand the effects of material
transactions and events; and
the terminology used is appropriate.
 Auditor's conclusions
Unmodified reports
When the auditor concludes that the financial statements
are prepared, in all material respects, in accordance with
the applicable financial reporting framework and there
are no additional matters to report they issue an
unmodified audit report.
Modified reports
If, however, the auditor concludes that either: the financial
statements as a whole are not free from material
misstatement, they have been unable to obtain sufficient
appropriate evidence, or there are additional matters to
report,then they have to issue a modified audit report.
 Types of Modified reports
Qualified opinion:
Is the first type of modified audit opinion where
auditors make a conclusion after their testing that
there is material misstatement found in the financial
statements; however, those misstatements are not
pervasive.
Pervasive here is a bit subjective as it is based on
auditors’ judgment.
But, according to the standard, misstatement is not
pervasive to financial statements if those
misstatements are not effected the entire financial
statements and users’ decision making.
 For example, the auditor will express a qualified opinion on
the basis that inventories amount to USD 500,000 (equal to
20% of total assets) at the end of the year does not exist.
 The qualified audit opinion is the massage to the users of
financial statements to have high skepticism when they are
using that financial information.
 Especially, the information that causes the auditor to
qualified the opinion.
 For example, if the opinion for the financial statements
qualified because of inventories, the users need to take
serious attention to that financial information.
 It is depending on the nature of business as well as
financial information to which level of skepticism that
users should have.
The adverse opinion:
Is issued to the financial statements where auditors
examine and concluded that those financial statements
are materially misstated and pervasive.
 It is the second type of qualified opinion and compared
to qualified opinion, adverse opinion is more serious.
 This opinion is the message to users of financial
statements that they should not rely on these financial
statements in their decision making.
For a qualified opinion, the auditor found material
misstatement in the financial statements, but those
misstatements are not pervasive. Yet, adverse opinion,
misstatements are both material and pervasive.

Disclaimer opinion,
Is different from both qualified and adverse. The auditor
issued the disclaimer opinion where they could not
obtain or unable to access the audit evidence for
individual items or in aggregation in to support their
testing.
Auditor believes that for those items that they are not
able to access and obtain information could be materially
misstated and pervasive.
This is happening after the auditor tries their best to
negotiate with the client to obtain all of that important
information and the client still rejects it no matter it is the
intention or unintentional.
For example, audit expresses their disclaimer opinion
when management refuses to provide supporting
documents too verified capital injection to the entity.
There are two factors that cause auditors to disclaim
their opinion. First, auditors are not able to obtain
audit evidence. Second, the objects that auditors
could not obtain the evidence are believed to be
materially misstated in financial statements.
NOTE: Normally, the modification of audit opinion is
not what the client wants, and the auditor should
strictly follow the standard and consult with highly
experienced professional qualifications before issued
such an opinion.
Sometime, if the opinion is not proper, the auditor
might be sued by the client.
 Materiality and pervasiveness
If the auditor comes to either of the above
conclusions they must then consider how significant
the matter is. If the matter is considered immaterial
then it should not affect the wording of the opinion and
a 'present fairly' or 'true and fair' wording may be used.

However, if the auditor concludes that the matter

is material they must modify the wording of their
opinion. If, in addition to being material, the auditor
considers the matter to be pervasive to the financial
statements, then this must also be incorporated into
the audit opinion.
Pervasive means that the matter is:
 not confined to specific elements of the financial
statements;
 if confined represents a substantial proportion of the
financial statements; or
 is fundamental to users understanding of the financial
 If the auditor concludes that the matter is pervasive
they are claiming that the financial statements may not
be relied upon in any part.
 if they give an adverse opinion they will state that the
financial statements "do not present fairly (or give a
true and fair view of).........."
 if they give a disclaimer they will state that they "do not
express an opinion on the financial statements."
 Auditor’s judgement Auditor’s judgement

Nature of Material but not Material and

matter pervasive pervasive

Financial Qualified opinion Adverse opinion

statements are
materially
misstated

Inability to Qualified opinion Disclaimer of opinion

obtain
sufficient
appropriate
evidence