## SA-700: Forming an Opinion and Reporting on Financial Statements

### Objectives

1. To form an opinion on the FS based on evaluation of conclusions drawn from audit evidence obtained.

2. To express that opinion through a written report.

---

### Types of Financial Statements

General Purpose Financial Statements (GPFS): Prepared as per a General Purpose Framework. Comprises:
Summary of significant accounting policies.
Other explanatory information.
Any other information required by statute.

General Purpose Framework is either:

Framework Type	Key Feature
Compliance Framework	Requires compliance with the framework
Fair Presentation Framework	Requires compliance AND acknowledges that: (a) Management may provide disclosures beyond those required to achieve fair presentation; (b) Management may depart from framework requirements to achieve fair presentation (explicitly acknowledged)

---

### Evaluations Before Forming Opinion

#### Qualitative Aspects of Accounting Practices

Management makes judgements while preparing FS (per SA-260 discussions).
Auditor must consider possible management bias together with uncorrected misstatements.
Check for lack of neutrality — indicators include:
Selective correction of misstatements brought to management's attention.
Management bias involving accounting estimates (also per SA-540).

#### Specific Evaluations

1. Proper disclosure of significant accounting policies.

2. Proper disclosure of material transactions and events.

3. Information is relevant, reliable, comparable, and understandable.

4. Accounting policies are appropriate and consistent.

5. Accounting estimates are reasonable.

6. Terminology (including titles of each FS) is appropriate.

#### Conclusions the Auditor Must Consider

1. Whether SAAE has been obtained.

2. Whether uncorrected misstatements are material.

3. The results of the specific evaluations above.

---

### Elements of the Auditor's Report

Element	Key Requirements
Title	Must clearly state it is the report of an Independent Auditor: "Independent Auditor's Report"
Addressee	Based on circumstances, law, regulations, and terms of engagement. Normally: shareholders (company) or TCWG (firm/LLP)
Opinion	Part 1: Identify entity audited; state FS have been audited; identify each statement comprising the FS; refer to notes and summary of significant accounting policies; specify the date and period covered. E.g., "We have audited the financial statements of Baba Ltd. which comprise the Balance Sheet, P&L A/c, SOCE, Cash Flow Statement and notes for the year ended 31st March, 2024." Part 2 — Unmodified Opinion: For Fair Presentation Framework: "In our opinion, the accompanying financial statements present fairly in all material respects in accordance with [FRF]" OR "...give a true and fair view in accordance with [FRF]" — these phrases are equivalent. For Compliance Framework: "The accompanying financial statements are prepared, in all material respects, in accordance with [FRF]"
Basis for Opinion	States: (1) Audit conducted per SAs; (2) SAAE obtained; (3) Auditor is independent per relevant ethical requirements; (4) Reference to section describing auditor's responsibilities under SAs
Key Audit Matters	Refer SA-701
Going Concern	States FS prepared on going concern basis; auditor obtained SAAE on appropriateness. If material uncertainty exists — auditor ensures adequate disclosure for fair presentation (FPF) or that FS are not misleading (compliance framework)
Other Information	Refer SA-720
Responsibilities of Management	(1) Preparing FS as per FRF; (2) Framing internal controls so FS are free from MM; (3) Assessing ability to continue as going concern. Based on SA-200 and agreed upon per SA-210 (engagement letter)
Responsibilities of Auditor	Part 1: (a) Objectives: obtain reasonable assurance FS are free from MM; issue auditor's report including opinion. (b) Reasonable assurance is a high level of assurance but NOT a guarantee. (c) Misstatement is material if it could influence economic decisions of users. Part 2: Compliance with SAs

Worked example

### Example 1

Example 1 — Opinion Paragraph Wording (Fair Presentation Framework):

"In our opinion, the accompanying financial statements give a true and fair view of the financial position of Baba Ltd. as at 31 March 2024, and of its financial performance and cash flows for the year then ended, in accordance with the Accounting Standards notified under Section 133 of the Companies Act, 2013."

Note: 'True and fair view' and 'present fairly in all material respects' are equivalent phrases under a Fair Presentation Framework.

### Example 2

Example 2 — Identifying Lack of Neutrality:

During audit, the auditor identifies 5 misstatements and brings them to management's attention. Management corrects 4 but refuses to correct a misstatement that increases profits. The selective correction of only profit-reducing misstatements is an indicator of lack of neutrality (management bias). The auditor must consider this together with uncorrected misstatements when evaluating whether the FS are materially misstated.

⚠️ Common exam mistakes

Using the phrase 'true and fair view' for a Compliance Framework — the correct phrase for a compliance framework is 'prepared in all material respects in accordance with [FRF]', not 'true and fair view'.
Confusing the Title element — the report must specifically say 'Independent Auditor's Report', not just 'Auditor's Report'.
Stating that reasonable assurance is a guarantee — it is explicitly a high level but NOT a guarantee that all material misstatements will be detected.
Forgetting that the Basis for Opinion paragraph must include a statement of independence, not just a reference to SAs.
Omitting reference to the period covered by the FS in the Opinion paragraph — the date and period covered must be specified.

Reference:

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →