ISA 705 - Modifications To The Opinion in The Independent Auditor's Report
ISA 705 - Modifications To The Opinion in The Independent Auditor's Report
ISA 705 - Modifications To The Opinion in The Independent Auditor's Report
Executive summary
Auditor shall express a qualified opinion if:
1 Understanding Basics
Auditor is duty bound to express his opinion on financial statements in a written report
whether financial statements are giving true and fair view of the business. If they do, the
auditor expresses an unmodifiedopinion.
Unmodified opinion simply means that financial statements are free from material
misstatements. However, things are not always good. And auditor may conclude that
expressing an unmodified opinion is incorrect then auditor has to modify his opinion.
Under what situation modification is necessary and how is that carried out in auditors
report, all of this other relevant guidelines are provided in ISA 705.
Based on the audit evidence obtained auditor concludes that misstatements in the
financial statements are material but not pervasive individually or in aggregate.
Usually the terms of engagement are decided before auditor actually starts carrying out
audit procedures and in the engagement letter management may include the limitations
on the scope of audit work. If auditor finds such limitations significantly reducing his
capacity to obtain sufficient audit evidence then auditor will ask management/client to
remove such limitations. If such limitations are not removed then auditor shall not
accept the audit engagement.
If after accepting the audit engagement, auditor becomes aware of limitations on his
audit work which may result in modified opinion then he shall ask management to
remove the imposed limitations.
If management refuses to remove such limitations then auditor shall communicate the
fact to those charged with governance and assess if alternative audit procedures can
help collect sufficient audit evidence.
If limitations are not removed and as a result auditor is unable to gather required
evidence then auditor decides about the opinion modification in his opinion as follows:
1. If auditor concludes that undetected misstatements could be material but not
pervasive then express a qualified opinion
2. If auditor concludes that undetected misstatements could be both material and
pervasive then:
1. Auditor shall withdraw from engagement and communicate the matter to
those charged with governance detailing the reasons of modification.
2. If withdrawal from engagement is not possible then express a disclaimer
of opinion