ISA 705 (Revised) DEALS with the auditor’s responsibility to ISSUE an appropriate report in circumstances when in forming an opinion in accordance with ISA 700 (Revised), the Auditor concludes that a MODIFICATION to the auditor’s opinion on the Financial Statements is necessary.
Table of Contents
- ISA 705 (Revised) – Introduction
- ISA 705 – Objective
- ISA 705 – Definitions
- ISA 705 – Requirements
- 1. Circumstances When a Modification to the Auditor’s Opinion is Required
- 2. Determining the Type of Modification to the Auditor’s Opinion
- 2.1 Qualified Opinion
- 2.2 Adverse Opinion
- 2.3 Disclaimer of Opinion
- 2.4 Consequences of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-Imposed Limitation After the Auditor has Accepted the Engagement
- 2.5 Considerations Relating to an Adverse Opinion or Disclaimer of Opinion
- 2.6 Considerations When the Auditor Disclaims an Opinion on the Financial Statements
- 3. Communication with Those Charged with Governance
- Synopsis
ISA 705 (Revised) – Introduction
1. Scope of this ISA
It also deals with how the form and content of the auditor’s report is affected when the ‘Auditor’ Expresses a MODIFIED opinion.
2. Effective Date
This ISA is EFFECTIVE for audits of financial statements for periods ending on or after December 15, 2016.
ISA 705 – Objective
The Objective of the ‘Auditor’ is to EXPRESS clearly an appropriately ‘MODIFIED OPINION’ on the Financial Statements that is Necessary when:
- The auditor concludes based on the audit evidence obtained, that the financial statements as a whole are Not free from Material Misstatement; OR
- The auditor is unable to obtain sufficient appropriate audit evidence.
ISA 705 – Definitions
1. Pervasive
| Pervasive Effects on the Financial Statements are Those that, in the Auditor’s Judgment: |
|---|
| (i) Are NOT confined to specific elements, accounts or items of the Financial Statements; |
| (ii) If so confined, represent or could represent a substantial proportion of the Financial Statements; OR |
| (iii) In relation to disclosures, are fundamental to users understanding of the Financial Statements. |
2. Modified Opinion
A ‘QUALIFIED‘ opinion, an ‘ADVERSE‘ opinion or a ‘DISCLAIMER‘ of opinion on the Financial Statements.
ISA 705 – Requirements
1. Circumstances When a Modification to the Auditor’s Opinion is Required
The ‘Auditor’ shall MODIFY the opinion in the auditor’s report when:
- The auditor concludes based on the audit evidence obtained, that the financial statements as a whole are Not free from Material Misstatement; OR
- The auditor is unable to obtain sufficient appropriate audit evidence.
2. Determining the Type of Modification to the Auditor’s Opinion
2.1 Qualified Opinion
The ‘Auditor’ shall EXPRESS a QUALIFIED opinion when:
| (a) Misstatements individually or in the aggregate are ‘Material’ but NOT pervasive; OR |
| (b) The ‘Auditor’ is UNABLE to obtain sufficient appropriate audit evidence, but the possible effects of undetected Misstatements could be ‘Material’ but NOT Pervasive. |
2.2 Adverse Opinion
The ‘Auditor’ shall EXPRESS an ADVERSE opinion when the auditor having obtained sufficient appropriate audit evidence concludes that Misstatements individually or in the aggregate are BOTH ‘Material’ and ‘Pervasive’ to the Financial Statements.
2.3 Disclaimer of Opinion
The ‘Auditor’ shall DISCLAIM an opinion when the auditor is UNABLE to obtain sufficient appropriate audit evidence and the possible effects of undetected Misstatements if any, could be BOTH ‘Material’ and ‘Pervasive’.
2.4 Consequences of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-Imposed Limitation After the Auditor has Accepted the Engagement
The ‘Auditor’ shall REQUEST that Management Remove the Limitation.
If Management refuses to ‘Remove’ the limitation, the auditor shall COMMUNICATE the Matter to those charged with governance.
2.5 Considerations Relating to an Adverse Opinion or Disclaimer of Opinion
When the ‘Auditor’ considers it necessary to express an ‘ADVERSE’ opinion or ‘DISCLAIM’ an opinion on the financial statements as a whole, the auditor’s report shall NOT also INCLUDE an UNMODIFIED opinion with respect to the same financial reporting framework on a Single Financial Statement or one or More specific Elements, Accounts or Items of a Financial Statement.
2.6 Considerations When the Auditor Disclaims an Opinion on the Financial Statements
UNLESS Required by law or regulation, when the auditor ‘DISCLAIMS’ an opinion on the Financial Statements, the auditor’s report shall NOT INCLUDE a Key Audit Matters section in accordance with ISA 701 or an Other Information section in accordance with ISA 720 (Revised).
3. Communication with Those Charged with Governance
When the ‘Auditor’ expects to MODIFY the opinion in the auditor’s report, the auditor shall COMMUNICATE with those charged with governance the circumstances that led to the expected Modification and the wording of the Modification.
Synopsis
ISA 705 ‘Modifications 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 ISA 700 (Revised), the Auditor concludes that a MODIFICATION to the auditor’s opinion on the Financial Statements is necessary.
[700-799] Audit Conclusions and Reporting
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)