## SA 700 – Forming an Opinion & Reporting on Financial Statements
### 1. Objectives (Dual Purpose)
| Objective | Description |
|---|---|
| Form an opinion | Based on evaluation of conclusions drawn from audit evidence obtained |
| Express the opinion | Through a written report that also describes the basis for the opinion |
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### 2. Qualitative Aspects – Evaluating the FS
The auditor evaluates whether the FS are prepared, in all material respects, in accordance with the Applicable Financial Reporting Framework (AFRF).
This includes considering indicators of possible management bias, such as:
- Selective correction: correcting misstatements that increase reported earnings but not those that decrease reported earnings
- Bias in accounting estimates: management's judgments that consistently favour a particular outcome
> Key test: If the cumulative effect of lack of neutrality plus uncorrected misstatements causes the FS as a whole to be materially misstated → auditor must consider a modified opinion.
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### 3. Specific Evaluations by the Auditor
The auditor must specifically evaluate all six of the following:
1. Disclosure of significant accounting policies selected and applied
2. Appropriateness of accounting policies — consistent with AFRF
3. Reasonableness of accounting estimates made by management
4. Information is relevant, reliable, comparable, and understandable
5. Adequate disclosures enabling users to understand effect of material transactions and events
6. Terminology (including titles of each FS) is appropriate
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### 4. Basic Elements of the Audit Report
#### Mandatory Sections in Order:
Title — Must clearly indicate it is an independent auditor's report
Addressee — As required by the circumstances of the engagement
Auditor's Opinion — Must include (mnemonic EAT-ND):
- E → Entity whose FS have been audited
- A → Statement that FS have been Audited
- T → Titles of each statement comprising the FS
- N → Reference to Notes including summary of significant accounting policies
- D → Date or period covered by each FS
Basis for Opinion — Directly follows the Opinion section; must state (mnemonic S1-A-I-S2):
- S1 → Audit conducted in accordance with Standards on Auditing
- A → Reference to Auditor's Responsibilities section of the report
- I → Statement of auditor Independence and fulfilment of other ethical responsibilities
- S2 → Whether audit evidence obtained is Sufficient and appropriate to provide basis for opinion
Going Concern — Where applicable, per SA 570 (Revised)
Key Audit Matters (KAM) — Mandatory for listed entities only, per SA 701
Management Responsibilities — Must describe management's responsibility for:
- Preparing FS per AFRF
- Maintaining internal control as necessary
- Assessing entity's ability to continue as a going concern
> Where oversight responsibility differs from management, heading must also refer to Those Charged with Governance.
Auditor's Responsibilities — Must state:
- Objective: obtain reasonable assurance that FS are free from material misstatement (fraud or error)
- Reasonable assurance is a high level of assurance but not a guarantee
- Misstatements are material if they could influence economic decisions of users
#### Location of Auditor's Responsibilities Description (three permitted options):
1. Within the body of the auditor's report
2. Within an appendix to the report (with cross-reference in the report body)
3. By specific reference to a website of an appropriate authority — only where expressly permitted by law/regulation
#### Additional Requirements for Listed Entities:
- State that auditor communicates with TCWG on planned scope, timing, and significant audit findings (including internal control deficiencies)
- Provide TCWG a statement of auditor's independence and communicate all relationships that may bear on independence
- State that from matters communicated to TCWG, the auditor determines and describes KAM in the report