Reporting

Question 1

Title and addressee

Answer 1

The title clearly identifies the report as an Independent Auditor’s Report.
The addressee identifies the intended user of the report and shows to whom the
auditor owes a duty of care

Question 2

Auditor’s opinion

Answer 2

The auditor’s opinion provides the auditor’s conclusion as to whether the
financial statements give a true and fair view.
The audit opinion can be unmodified or modified

Question 3

Unmodified opinion

Answer 3

The auditor will give an unmodified opinion when they conclude that the
financial statements are prepared, in all material respects, in accordance with
the applicable financial reporting framework

Question 4

Modified opinion - The auditor will need to modify the opinion when they conclude that:

Answer 4

 Based on the evidence obtained, the financial statements as a whole
are not free from material misstatement. This is where the client has
not complied with the applicable financial reporting framework.
 They have been unable to obtain sufficient appropriate evidence to be
able to conclude that the financial statements as a whole are free from
material misstatement. This is evidence the auditor would expect to exist
to support the figures in the financial statements

Question 5

A matter is considered ‘pervasive’ if, in the auditor’s judgement:

Answer 5

 The effects are not confined to specific elements, accounts or items of the
financial statements
 If so confined, represent or could represent a substantial proportion of the
financial statements, or
 In relation to disclosures, are fundamental to users’ understanding of the
financial statements

In brief, a pervasive matter must be fundamental to the financial statements,
therefore rendering them unreliable as a whole

Question 6

Qualified opinion

Answer 6

 If the misstatement or lack of sufficient appropriate evidence is material
but not pervasive, a qualified opinion will be issued. [ISA 705, 7]
 This means the matter is material to the area of the financial statements
affected but does not affect the remainder of the financial statements.
 Although significant to users’ decision making, a material matter can be
isolated while the remainder of the financial statements may be relied
upon.
 The opinion will state that ‘Except for’ this matter, the financial statements
give a true and fair view

Question 7

Adverse opinion

Answer 7

An adverse opinion is issued when a misstatement is considered material and
pervasive. [ISA 705, 8]
This will mean the financial statements do not give a true and fair view.
Examples include:
 Preparation of the financial statements on the wrong basis.
 Non-consolidation of a material subsidiary.
 Material misstatement of a balance which represents a substantial
proportion of the assets or profits e.g. would change a profit to a loss.

Question 8

Disclaimer of opinion

Answer 8

A disclaimer of opinion is issued when the auditor has not obtained sufficient
appropriate evidence and the effects of any possible misstatements could be
pervasive. [ISA 705, 9]
The auditor does not express an opinion on the financial statements in this
situation.
Examples include:
 Failure by the client to keep adequate accounting records.
 Refusal by the directors to provide written representation.
 Failure by the client to provide evidence over a single balance which
represents a substantial proportion of the assets or profits or over multiple
balances in the financial statements

Question 9

Impact of a disclaimer of opinion

Answer 9

Where a disclaimer of opinion is being issued:
 The statement that sufficient appropriate evidence to provide a basis for
the auditor’s opinion has been obtained is not included.
 The statement that the financial statements have been audited is changed
to ‘we were engaged to audit the financial statements’.
[ISA 705, 19]
 The statements regarding the audit being conducted in accordance with
ISAs, and independence and other ethical responsibilities, are positioned
within the Auditor Responsibilities section rather than the Basis for
Disclaimer of Opinion section. [ISA 705, A25]
 The Key Audit Matters section is not included in the report as to do so
would suggest the financial statements are more credible in relation to
those matters which would be inconsistent with the disclaimer of opinion
on the financial statements as a whole

Question 10

Key Audit Matters section

Answer 10

ISA 701 Communicating Key Audit Matters in the Independent Auditor’s Report
requires auditors of listed companies to determine key audit matters and to
communicate those matters in the auditor’s report

Question 11

Material Uncertainty Related to Going Concern

Answer 11

This section is included when there is a material uncertainty regarding the going
concern status which the directors have adequately disclosed in the financial
statements. The auditor uses this section to draw the attention of the user to the
client’s disclosure note.

Question 12

Emphasis of Matter paragraph

Answer 12

An Emphasis of Matter paragraph is used to refer to a matter that has been
appropriately presented or disclosed in the financial statements by the
directors. The auditor’s judgement is that these matters are of such
fundamental importance to the users’ understanding of the financial
statements that the auditor should emphasise the disclosure

Question 13

Examples of such fundamental matters include:

Answer 13

 An uncertainty relating to the future outcome of exceptional litigation or
regulatory action.
 A significant subsequent event occurs between the date of the financial
statements and the date of the auditor’s report.
 Early application of a new accounting standard.
 Major catastrophes that have had a significant effect on the entity’s
financial position
 The financial statements have been prepared on a basis other than the
going concern basis.
 The corresponding figures have been restated.
 The financial statements have been recalled and reissued or when the
auditor provides an amended auditor’s report

Question 14

Position in the auditor’s report

Answer 14

An Emphasis of matter paragraph is usually included after the Basis for Opinion
section. 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, based on the auditor’s judgement as to the
relative significance of the information included in the Emphasis of Matter
paragraph.
The heading of the paragraph can be amended to provide further context, for
example, Emphasis of Matter – Subsequent event

Question 15

Tutorial note

Answer 15

An Emphasis of Matter paragraph is not used to draw attention to
immaterial misstatements. The fact that they are immaterial means they do
not warrant the attention of the shareholders.
An Emphasis of Matter paragraph can only be used when adequate
disclosure has been made of the matters mentioned above. The auditor
can only emphasise something that is already included. Where adequate
disclosure has not been made the opinion will need to be modified and an
Emphasis of Matter paragraph should NOT be used.
An Emphasis of Matter should not be used to highlight an issue already
included in the Key Audit Matters section. The auditor must use judgement
to determine which section they consider is the most appropriate to
highlight the issue

Question 16

Other Matter paragraph

Answer 16

An Other Matter paragraph is included in the auditor’s report if the auditor
considers it necessary to communicate to the users regarding matters other
than those presented or disclosed in the financial statements that, in the
auditor’s judgement, are relevant to understanding the audit, the auditor’s
responsibilities, or the auditor’s report

Question 17

Responsibilities of management and auditors

Answer 17

The responsibilities of management and auditors are included to help minimise
the expectation gap.
The section on management responsibilities clarifies that management is
responsible for preparing the financial statements and for the internal controls.
The section on auditor’s responsibilities clarifies that the auditor is responsible
for expressing reasonable assurance as to whether the financial statements
give a true and fair view and express that opinion in the auditor’s report. The
section also describes the auditor’s responsibilities in respect of risk
assessment, internal controls, going concern and accounting policies