PSA 705 - Modification to the Opinion in the Independent Auditor’s Report
• Deals with the auditor’s responsibility to issue an appropriate report in circumstances when in forming an opinion in accordance with PSA 700 “Forming an Opinion and Reporting on Financial Statements”
• Matters That Do Not Affect The Auditor's Opinion
a) Emphasis of matter
• Matters That Do Affect the Auditor's Opinion
a) Qualified opinion,
b) Disclaimer of opinion, or
c) Adverse opinion.
Factors to consider in determining which modified opinion is appropriate:
1. The nature of the matter gives rise to modification whether financial statements are materially misstated or in case of inability to obtain sufficient appropriate audit evidence, may be materially misstated.
2. Auditor’s judgment about the pervasiveness of the effects or possible effects of the matter on financial statements.
Circumstances when Modification is Required
1. Based on audit evidence, financial statements are not free from material misstatements.
2. Auditor is unable to obtain sufficient appropriate audit evidence.
A qualified opinion:
a) Either obtained sufficient appropriate evidence or not, but misstatements are Material but not pervasive.
Expressed as being ''Except for'' the effects of the matter to which the qualification relates.
An adverse opinion:
a) Have obtained sufficient appropriate audit evidence where misstatements are Both material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
A disclaimer of opinion:
Both material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.
Consequences of Inability to Obtain S&A audit evidence due to Limit by Mgmt. after Auditor accepted the Engagement
• Auditor shall request the management to remove that limitation
• If management refuses, the auditor shall communicate to those charge with governance.
• If the possible effects are both pervasive and material;
a) Resign from the audit
b) If resignation is not practicable, disclaim the opinion.
Form and Content of Auditor’s Report When the Opinion is Modified
• Specific Elements
• Modification Paragraph
• Opinion Paragraph
• Emphasis of Matter Paragraph
• Other Matter Paragraph
Basis of Modification Paragraph
• Description on the matter giving rise to modification.
• If material misstatements relates to amounts, auditor shall include in the basis of modification paragraph a description and quantification of financial effects unless impracticable.
• If it relates to narrative disclosures, auditor shall include in the basis of mod. Par. An explanation of how disclosures are misstated.
• If it relates to non-disclosure of information, auditor shall:
a) Discuss with those charged with governance
b) Describae nature of omitted disclosure
c) Include omitted disclosure, unless prohibited by law
• Identifies the applicable financing reporting framework on which the financial statements are based.
• Expresses an opinion on the financial statements
Fair Presentation Framework
• Used to refer to a financial reporting framework that requires compliance with the requirements of the framework and;
a) Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework:
b) Acknowledges explicitly that it may be necessary for...
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