The document presents an overview of audit reports, including the definition and purpose of an audit, relevant auditing standards, and key responsibilities of both auditors and management. It outlines specific standards such as SA 700, SA 701, SA 705, and SA 706, detailing the requirements for auditors' opinions, communication of key audit matters, and modifications to opinions. The document emphasizes the importance of clear communication in auditors' reports to enhance user understanding and transparency.

1. Study Circle on Audit Reports
Presented by: Rohan Tauro
Venue: ICAI Bhawan, K. R. Rao Road, Mangaluru
Date: November 27, 2019

2. Definition of an Audit
An audit is:
 an independent examination of financial information;
 of any entity, whether profit oriented or not, and
irrespective of its size and legal form;
 when such an examination is conducted with a view to
expressing an opinion thereon.

3. Relevant Standards on Auditing (SA)
 SA 700 (Revised): Forming an Opinion and Reporting on
Financial Statements (1st April 2017);
 SA 701: Communicating Key Audit Matters in the
Independent Auditor’s Report (1st April 2017);
 SA 705 (Revised): Modifications to the Opinion in the
Independent Auditor’s Report (1st April 2017);
 SA 706 (Revised): Emphasis of Matter Paragraphs and
Other Matter Paragraphs in the Independent Auditor’s
Report (1st April 2017);

4. SA 700 (Revised)
Forming an Opinion and Reporting on
Financial Statements

5. SA 700: Objectives
 To form an opinion on the financial statements
• based on an evaluation of the conclusions
• drawn from the audit evidence obtained
 To express clearly that opinion
• through a written report

6. Basic elements of the Auditor’s Report

7. Title
 “Independent Auditor’s Report”
Addressee
 Addressed to the members of the company
• in case of general purpose financial statements
 Addressed to the Board of Directors
• in case of special purpose financial statements

9. Auditor’s Opinion
The Opinion section of the auditor’s report shall:
 identify the entity;
 state that the financial statements have been audited;
 identify the title of each statement;
 refer to the notes, including the summary of significant accounting
policies; and
 specify the date of, or period covered.

11. Basis for Opinion
The Basis for Opinion section of the auditor’s report shall state:
 conducted in accordance with SAs;
 refer to the section of the auditor’s responsibilities under the SAs;
 auditor is independent of the entity; and
 audit evidence obtained is sufficient and appropriate.

13. Responsibility of the Management / TCWG
This section shall describe management’s responsibility for:
 preparing the financial statements;
 internal control;
 assessing the entity’s ability to continue as a going concern;
 whether the use of going concern basis of accounting is appropriate.

15. Auditor’s Responsibilities for the Audit
This section of the auditor’s report shall state:
 the objectives are to obtain reasonable assurance and issue an
auditor’s report.
 that reasonable assurance is a high level of assurance, but is not
guaranteed;
 that misstatements can arise from fraud or error, and describe when
they are considered to be material;
 provide a definition or description of materiality.

16. Auditor’s Responsibilities for the Audit
This section of the auditor’s report shall state:
 exercised professional judgment and maintains professional
skepticism.
 identify and assess the risks of material misstatement;
 obtain an understanding of the internal controls;
 evaluate the appropriateness of accounting policies, estimates;
 conclude on the appropriateness of going concern basis;
 evaluate the presentation, structure and content of the FS;
 describe the auditor’s responsibilities in a group audit engagement.

17. Auditor’s Responsibilities for the Audit
This section of the auditor’s report shall state:
 communication with TCWG about scope and timing of audit,
significant audit findings, significant deficiencies in internal control;
 provide TCWG with statement of compliance with ethical
requirements, communication of relationships and other matters;
 state the Key Audit Matters were of most significance.

19. Location of the description of auditor’s
responsibilities
The description shall be included:
 within the body of the auditor’s report;
 within an appendix to the auditor’s report; or
 by a specific reference a website where expressly
permitted to do so.

20. Other reporting responsibilities
 If the auditor addresses other reporting responsibilities;
 in addition to the auditor’s responsibilities under the SAs;
 addressed in a separate section “Report on Other Legal
and Regulatory Requirements”.
 This section shall follow the “Report on the Audit of the
Financial Statements”.

22. Signature of the Auditor
 The report is to be signed by the maker of the report
 A chartered accountant in practice signs the report in his
individual name or the firm name of which he is the sole
proprietor
 For members in practice as a partnership firm, it is to be
signed in the name of the firm by one or more partners

23. Place of Signature and Date of Report
 The report shall name specific location, ordinarily the city,
where the audit report is signed
 The report shall be dated no earlier than the date on which
the auditor has obtained sufficient appropriate audit
evidence on which to base his opinion

24. SA 701
Communicating Key Audit Matters in the
Independent Auditor’s Report

25. SA 701: Objectives
 To enhance the communicative value of the auditor’s
report;
 To assist the user in understanding those matters that were
of most significance in the audit.

26. Determining Key Audit Matters
The auditor shall take into account the following:
 Areas of higher assessed risk of material misstatement, or
significant risks identified in accordance with SA 315;
 Areas that involved significant management judgment,
including accounting estimates having high estimation
uncertainty;
 The effect of audit of significant events or transactions that
occurred during the period.

29. SA 705 (Revised)
Modifications to the Opinion in the
Independent Auditor’s Report

30. SA 705: Objectives
 To express clearly an appropriately modified opinion on the
financial statements when:
 the auditor concludes that the financial statements as a whole are
not free from material misstatement; or
 the auditor is unable to obtain sufficient appropriate audit
evidence to conclude that the financial statements as a whole are
free from material misstatement.

31. Types of Modified Opinions under SA 705
i. Qualified Opinion
ii. Adverse Opinion
iii. Disclaimer of Opinion

32. Determining the type of Modification
i. Qualified Opinion is expressed when:
 the auditor, having obtained sufficient appropriate audit
evidence, concludes that misstatements are material, but
not pervasive; or
 the auditor is unable to obtain sufficient appropriate audit
evidence on which to base the opinion, but concludes that
the possible undetected misstatements could be material,
but not pervasive.

33. Determining the type of Modification
ii. Adverse Opinion is expressed when:
 the auditor, having obtained sufficient appropriate audit
evidence, concludes that misstatements are both material
and pervasive to the financial statements;
iii. Disclaimer of Opinion is expressed when:
 the auditor is unable to obtain sufficient appropriate audit
evidence on which to base the opinion, but concludes that
the possible undetected misstatements could be both
material and pervasive.

34. SA 706 (Revised)
Emphasis of Matter Paragraphs and
Other Matter Paragraphs in the
Independent Auditor’s Report

35. SA 706: Objectives
To draw user’s attention by way of additional communication:
 to a matter that is of such importance that it is fundamental
for the understanding of the user; or
 to any other matter that is relevant to users’ understanding
of the audit, the auditor’s responsibilities or the auditor’s
report.

36. ‘Emphasis of Matter’ Paragraph
A paragraph included in the auditor’s report that refers to a matter:
 appropriately presented or disclosed in the financial statements;
 in the auditor’s judgment, is of such importance that it is fundamental
to users’ understanding of the financial statements.
The auditor shall include an ‘Emphasis of Matter’ paragraph provided:
 he would not be required to modify the opinion; and
 the matter has not been determined to be a Key Audit Matter.

37. THANK YOU