Un-Modified Audit Report

Containing Un-Modified Audit Opinion

When auditor can issue This Report?

1. FS have been prepared, in all material respects, in accordance with the applicable financial reporting
framework. OR
2. Not revealed any material misstatements in those financial statements.

To Form this audit opinion, Must evaluate whether:

1. obtained sufficient appropriate audit evidence
2. uncorrected misstatements are material, individually or in aggregate
3. FS have been prepared in accordance with the requirements of the applicable FRF and whether:
a) Applicable FRF described
b) Entity’s significant accounting policies disclosed
c) Accounting policies are appropriate and consistent with the FRF
d) Accounting estimates are reasonable
e) Information in FS is relevant, reliable, comparable and understandable
f) Adequate disclosures
g) Terminology used is appropriate.
Core elements of the audit report
The basic elements of an unmodified audit report, as given in ISA 700 (Revised), are as follows:
1. Title
2. Addressee
3. Auditor‘s opinion
4. Basis for opinion
5. Going Concern
6. Key Audit Matters
7. Other information
8. Responsibilities for the financial statements
9. Auditor‘s responsibility for the audit of financial statements
10. Other reporting responsibilities (if any)
11. Name of the Engagement Partner
12. Auditor‘s signature
13. Auditor‘s address.
14. Date of the audit report

Unaudited supplementary information presented with the audited financial statements

The report and accounts issued by a company often contain supplementary information that is not covered by
the auditor‘s opinion, such as a chairman‘s statement, employment report or business review.

If the auditor concludes that the unaudited information is not clearly differentiated, then he should ask
management to change how that information is presented. If management refuse to do so then the auditor should
explain in his report that the supplementary information has not been audited.
 Modified Audit Report

Auditor shall modify the opinion in the auditor’s report when:

1. Based on the AE obtained, FS as a whole are 2. Unable to obtain sufficient appropriate AE
not free from MM; or to conclude that FS are free from MM.

MM of the FS may arise in relation to the Nature of an inability to obtain AE:

following:
1) The appropriateness of the selected
accounting policies;
a) The selected accounting policies are
not consistent with applicable FRF;
or
b) FS including the related notes, do not
represent the underlying transactions
and events in a manner that achieves
fair presentation.
2) The application of the selected accounting
policies;
a) Not applied the selected accounting
policies consistently with the FRF,
including between periods or to
similar transactions and events; or
b) Due to the method of application of
the selected accounting policies (such 3) Limitations imposed by management.
as an unintentional error in
application).
3) The appropriateness or adequacy of
disclosures in FS.
a) FS do not include all of the
disclosures required by the FRF;
b) Disclosures in FS are not presented
in accordance with FRF; or
c) FS do not provide the disclosures
necessary to achieve fair
presentation.
1) Circumstances beyond the control of the entity;
a) The entity’s accounting records have
been destroyed.
b) The accounting records of a significant
component have been seized
indefinitely by governmental
authorities.
2) Circumstances relating to the nature or timing
of the auditor’s work;
a) Due to timing of auditor’s appointment
unable to observe physical inventories
count.
b) Auditor determines that performing
substantive procedures alone is not
sufficient, but the entity’s controls are
not effective.
a) Management prevents the auditor from
observing the counting of the physical
inventory.
b) Management prevents the auditor from
requesting external confirmation of
specific account balances.
Determining the type of modification to opinion

1) Qualified opinion
2) Adverse opinion
3) Disclaimer of opinion
Qualified Adverse Disclaimer

Obtained AE concludes MM but not Obtained AE concludes MM and is Unable to obtain AE, possibility of
pervasive pervasive undetected MM and pervasive
Unable to obtain AE, possibility of Obtained AE but due
undetected MM but not pervasive circumstances involving multiple
uncertainties unable to form
opinion

 Materiality and pervasive on types of scope limitation

Circumstances beyond Entity ‘s Limitation imposed by Due to timing and Nature of
control management Auditor’s work
Disclaimer Disclaimer Disclaimer

Withdrawal

Pervasive-
 Found everywhere or spread everywhere
 Pervasive misstatement would be so serious that to all intents and purposes FS would be useless
 Form and content of the modified report
 Opinion paragraph- When the auditor modifies the audit opinion, the auditor shall use the heading
“Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the opinion
paragraph.

Qualified Opinion

Obtained AE concludes MM but not except for the effects of the matter(s) described in the Basis for
pervasive Qualified Opinion paragraph:
“Financial statements present fairly, in all material
……………..
Unable to obtain AE, possibility of “except for the possible effects of the matter(s) ...”
undetected MM but not pervasive
Adverse Opinion

Obtained AE concludes MM and is The financial statements do not present fairly (or give a true and fair
pervasive view) ……… or
The financial statements have not been prepared, in all material
respects, in accordance with
Disclaimer Opinion

Unable to obtain AE, possibility of 1- The auditor does not express an opinion on the financial
undetected MM and pervasive statements.
2- 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
Obtained AE but due circumstances
involving multiple uncertainties unable to
form opinion
 Emphasis of matter paragraphs
 A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed
in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to
users’ understanding of the financial statements.

 The matter highlighted must not be a matter:

1. requiring modification of opinion as per ISA 705; or

2. determined to be a key audit matter to be communicated in the auditor’s report

3. When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor
shall:

 Include it as a separate section in the auditor’s report;

 Use any appropriate heading including the term “Emphasis of Matter,”;

 Include in the paragraph a clear reference to the matter being emphasized and to where
relevant disclosures that fully describe the matter can be found in the financial
statements; and

 Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.

 The inclusion of an Emphasis of Matter paragraph in the auditor’s report does not affect the auditor’s
opinion. An Emphasis of Matter paragraph is not a substitute for either:

1. The auditor expressing a modified opinion as per ISA 705 (Revised); or

2. Disclosures in the financial statements that the applicable financial reporting framework requires
management to make.

3. Reporting in accordance with ISA 570 (Revised) when a material uncertainty exists relating to
events or conditions that may cast significant doubt on an entity’s ability to continue as a going
concern

 Circumstances in which an emphasis of matter paragraph may be necessary

1. An uncertainty relating to the future outcome of exceptional litigation or regulatory action.

2. Early application (where permitted) of a new accounting standard that has a pervasive effect on
the financial statements.

3. A major disaster having, a significant effect on the entity’s financial position.

 Other matter paragraphs
 A paragraph included in the auditor’s report that refers to a matter other than those presented or
disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding
of the audit, the auditor’s responsibilities or the auditor’s report.

 Circumstances where auditor may include other matter paragraph in report

1. Relevant to Users’ Understanding of the Audit

2. Relevant to Users’ Understanding of the Auditor’s Responsibilities or the Auditor’s Report

3. Reporting on more than one set of financial statements

4. Restriction on distribution or use of the auditor’s report

5. Placement of emphasis of matter or other matter paragraph in auditor’s report

 Emphasis of matter paragraph

1. When the Emphasis of Matter paragraph relates to the FRF, place the paragraph immediately
following the Basis of Opinion section.

2. When a Key Audit Matters section is presented in the auditor’s report, an Emphasis of Matter
paragraph may be presented either directly before or after the Key Audit Matters section.

3. Placement of emphasis of matter or other matter paragraph in auditor’s report

 Other Matter Paragraphs

1. When a Key Audit Matters section is presented in the auditor’s report and an Other Matter
paragraph is also considered necessary, the auditor may add further context to the heading
“Other Matter”, such as “Other Matter – Scope of the Audit”, to differentiate the Other Matter
paragraph from the individual matters described in the Key Audit Matters section.

 Communication with those charged with governance

1. Communicate with those charged with governance regarding this expectation and the proposed
wording of this paragraph.

2. Enables those charged with governance to be made aware of the nature of any specific matters
that the auditor intends to highlight in the auditor’s report, and provides them with an
opportunity to obtain further clarification from the auditor where necessary.

3. Where the inclusion of an Other Matter paragraph on a particular matter in the auditor’s report
recurs on each successive engagement, the auditor may determine that it is unnecessary to repeat
the communication on each engagement