2. AUDIT REPORTING
700–799 AUDIT CONCLUSIONS AND REPORTING
Audit reporting is mainly dealt by following ISA’s:
ISA 700, Forming an Opinion and Reporting on Financial Statements
ISA 705, Modifications to the Opinion in the Independent Auditor’s Report
ISA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in
the Independent Auditor’s Report
ISA 710 Comparative Information—Corresponding Figures and
Comparative Financial Statements
ISA 720, The Auditor’s Responsibilities Relating to Other Information in
Documents Containing Audited Financial Statements
3. AUDIT REPORTING
Scope of this ISA 700-705: This International Standard on Auditing (ISA)
deals with the auditor’s responsibility to form an opinion on the
financial statements. It also deals with the form and content of the
auditor’s report issued as a result of an audit of financial statements.
ISA 700- AUDIT REPORT is “A written report encompasses reports issued in
hard copy format and those using an electronic medium.
• The auditor’s report shall be in writing. (Ref: Para. A13–A14)
• The auditor’s report shall have a title that clearly indicates that it is the
report of an independent auditor. (Ref: Para. A15)
4. There are four (04) major types of audit report. These are:
1) Unqualified Audit report- where clean report is issued and no modifications to
the audit report are made.
2) Qualified audit report- The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive.
3) Adverse Opinion: The auditor shall express an adverse opinion when the auditor,
having obtained sufficient appropriate audit evidence, concludes that misstatements,
individually or in the aggregate, are both material and pervasive to the financial statements.
4) Disclaimer of Opinion: when the auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, and the auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any, could be both
and pervasive
5. Audit report
Modified Audit
report
Un qualified
report
Emphasis of
Matter Paragraph
Qualified report
Material AND
Pervasive
Disagreement with
management
Adverse
Opinion
01
Limitation of scope/ Inability
to obtain sufficient
appropriate audit evidence
Disclaimer of
Opinion
02
Material but not
Pervasive
Disagreement
with management
Except for
qualification
03
Limitation of scope/ Inability
to obtain sufficient
appropriate audit evidence
Except for
qualification
04
Un modified Audit
report
Clean report to
client
6. UNQUALIFIED AUDIT REPORT
Un qualified audit report is the most common type of independent audit report
issued by the auditors. There are no issues identified that may caste significant
doubts over the true and fair view of the Financial statements.
Example of unqualified report is like:
7. UNQUALIFIED AUDIT REPORT- EMPHASIS OF MATTER PHARAGRAPH
Emphasis of Matter Paragraph is another version of unqualified report. The auditors
do not qualify the audit report and an Emphasis of matter paragraph is added
before opinion paragraph in order to divert the shareholder attention towards a
matter that has an impact of the Financial statement and needs to be brought to
the attention of the shareholders. E.g. Going concern disclosure. Example of
modified for Emphasis of Matter Paragraph report is like:
8. QUALIFIED AUDIT REPORT
Qualified audit report may be of two types. These are
Except for qualification where the matter is Material but not Pervasive and there are
two reasons for this;
1) Disagreement with Management on matters
2) In ability to obtain sufficient Appropriate Audit evidence/ Limitation place on
the scope of work of auditors
The “Except for qualification” is issued where the matter is above the materiality
level set by auditors.
Suppose accounts receivables represents 10% of total sales for the year, for which
existence and valuation assertions cannot be verified. In this case only accounts
receivable is materially misstated and not the whole financial statements.
Another example is the client has refused to share the list of trade debtors with
auditors and no balance confirmations have been sent to major debtors, thus
placing limitation of scope on work of auditors
10. ADVERSE OPINION
Adverse opinion is issued where material misstatement exist and the matter is
related to Financial statement as a whole.
For example. The financial condition of the client is worst and auditors believe that
the company is not going concern and caste significant doubts over the going
concern assumption of management for next 12 months. Financial statement are
prepared on going concern basis while auditors believe that FS may be prepared
on break up basic. Thus an adverse opinion will be issued if not properly disclosures
are made as well. Example is;
11. DISCLAIMER OF OPINION
Disclaimer of opinion is issued where auditors are unable to obtain sufficient
appropriate audit evidence, to draw a conclusion on the figures reported in
Financial statement as a whole. Auditors do not express any opinion over the
reasonableness of figures reported. Example is;
