ISA 705 - Modifications to the Opinion in the Independent Auditor's Report

Question 1

ISA 705: Modifications to the Opinion in the Independent Auditor’s Report:

Answer 1

We have 3 Modified Opinions as follows:
1. Qualified Opinion:

2. Adverse Opinion:
3. Disclaimer Opinion:

There are two reasons why an Auditor will give a Modified Opinion:
a. Auditor’s Opinion that FS as a whole are not free from Material Misstatements.
b. Auditor is unable to obtain SAAE on which ha can base the Audit Opinion.

Pervasive Effect on the FS.
> Pervasive means wide spread Effect on the FS.
> If the Auditor finds a Misstatement that is not confined to a particular item and affects overall FS. It is Pervasive effect.

Auditor unable to obtain SAAE.
It is possible effect.
1. If Misstatements are Material and, but Not Pervasive, the Auditor gives a, Qualified Opinion.
2. If Misstatements are Material and, But Not Pervasive with a Possible effect, the Auditor gives a Qualified Opinion.
3. If Misstatements are bot Material and pervasive, with a Pervasive effect, the Auditor gives an Adverse Opinion.
4. If Misstatements are both Material and pervasive but with a Possible effect, the Auditor gives a Disclaimer of Opinion.

If imposition of limitation of management is there then the Auditor needs to communicate with TCWG and find if there is any alternative course of action. Restrictions are not needed in Audit.
If alternative course of action is not available and there is possibility of Misstatement then Auditor evaluate the Possible effect.

You will see if it is both Material and Pervasive.
Withdraw from the Engagement if possible otherwise give Disclaimer of Opinion.
If it is Material but not Pervasive, Qualified Opinion.

Everything on the Report remains the same as in accordance with ISA 700. However the Opinion section changes, we will have the following instead depending on the results:
Qualified Opinion,
Adverse Opinion, and
Disclaimer of Opinion.

When it’s a Qualified Opinion, in case of Fair Presentation Framework, the language used in the Opinion Paragraph is like:
Except for the matters described in the basis for Qualified Opinion Paragraph, the Financial Statements give a True and Fair View as per applicable FRF.

Language of Qualified Opinion in case of Compliance Framework:
Except for the matters described in the basis for Qualified Opinion Paragraph the Financial Statements comply with the FRF.

Basis for Qualified Opinion Paragraph:
Reason for Qualified Opinion:
If it is impracticable to disclose huge volume of disclosures, then the Auditor need not disclose that and give nature and description.

Language of Qualified Opinion: In case of Fair Presentation Framework:
Because of the matters or the significance of matters given in the basis for Adverse Opinion, the Financial Statements do not present Fair in accordance with FRF.

Language of Adverse Opinion: in case of Compliance Framework:
Because of the significance of the matters given in the basis for Adverse Opinion Paragraph the Financial Statements do not comply in all respects in accordance with FRF.

Language used in Disclaimer of Opinion: in case of Compliance Framework:
We could not obtain SAAE.

Basis for Qualified Opinion:
Item: Describe and Quantify the Misstatements.
Misstatements connected to disclosure. Give the correct disclosure and its nature and description.

Basis for Adverse Opinion:

Basis for Disclaimer of Opinion:

• We believe that we obtained SAAE on which the Audit Opinion is based.
  In the place of Opinion, the Auditor needs to change with Qualified Opinion or Adverse Opinion.
• In case of Disclaimer of Opinion, the Auditor’s Responsibility will change. The Auditor’s Responsibility section should mention below:
• The Auditor responsible to conduct the Audit in accordance with ISAs and issue Report based on that.
• Because of the matters given in the basis for Disclaimer of Opinion section, the Auditor unable to obtain SAAE.
• Statement regarding Ethical Requirements.

Also remember in case of Disclaimer of Opinion, there can be a Compliance of ISA 701.
> If the Disclaimer of Opinion, in the Introductory lines should not be like we have audited theFinancial Statements of XYZ entity.
Instead, it should contain, We were engaged to Audit of XYZ entity.

Basis for Opinion Section:
> We conducted the Audit as per ISAs.
> Reference to the Auditor’s Responsibility section.
> We conducted the Audit based on Ethical standards, Independence and Code of Ethics given by ZICA.
* We believe that we obtained SAAE on which the Audit Opinion is based.
* In place of Opinion, the Auditor needs to change with Qualified Opinion or Adverse Opinion.

> Whatever you decide to put as your Opinion, the Auditor needs to communicate with TCWg before drafting and issuing his report.