# SA 705 — Modifications to the Opinion in the Auditor's Report
## 1. Objective
To express an appropriately modified opinion when:
- The auditor concludes FS are not free from MM, OR
- The auditor is unable to obtain SAAE to conclude FS are free from MM.
Decision on type of modification depends on:
- Nature of the matter giving rise to modification.
- Auditor's judgment about the pervasiveness of effects on FS.
## 2. Pervasive — Definition
‘Pervasive’ describes effects on FS of misstatements (or possible effects of undetected misstatements). Effects are pervasive if, in the auditor's judgment, they:
- Are not confined to specific accounts of the FS; OR
- If so confined, represent a substantial proportion of the FS; OR
- For disclosures, are fundamental to users' understanding of the FS.
## 3. Three Types of Modified Opinion
| Type | When Used |
|---|---|
| Qualified Opinion | (a) SAAE obtained → misstatements material but not pervasive, OR (b) Unable to obtain SAAE → possible effects could be material but not pervasive |
| Adverse Opinion | SAAE obtained → misstatements both material AND pervasive |
| Disclaimer of Opinion | Unable to obtain SAAE → possible effects could be material AND pervasive |
### Decision Matrix
| Nature of matter | Material but not pervasive | Material and pervasive |
|---|---|---|
| FS materially misstated | Qualified | Adverse |
| Inability to obtain SAAE | Qualified | Disclaimer |
## 4. Management-Imposed Scope Limitation (after acceptance)
If Management imposes a limitation after engagement acceptance, the auditor shall:
1. Request management to remove the limitation.
2. If management refuses → communicate to TCWG and determine if alternative procedures can obtain SAAE.
3. If still unable:
- If possible effects are material but not pervasive → Qualify opinion.
- If possible effects are material AND pervasive → Withdraw, if possible under L&R.
4. If withdrawal is not possible before issuing report → Disclaim opinion.
5. Before withdrawing — communicate to TCWG any misstatement identified that would have caused modification.
## 5. Form & Content When Opinion Is Modified
### Opinion Section Headings
Use: ‘Qualified Opinion’, ‘Adverse Opinion’, or ‘Disclaimer of Opinion’.
### Qualified Opinion Wording
- ‘Except for the effects of the matter described in the Basis for Qualified Opinion section…’
- If from inability to obtain SAAE → ‘Except for the possible effects of the matter…’
### Adverse Opinion Wording
- ‘Because of the significance of the matters described in the Basis for Adverse Opinion …’
- Fair presentation framework → ‘FS do not present fairly (or give a true and fair view of)’.
- Compliance framework → ‘FS are not prepared, in all material respects, in accordance with…’.
### Disclaimer of Opinion Wording
- Auditor states they do not express an opinion.
- States auditor was not able to obtain SAAE to provide a basis.
- Amend the introductory statement — change ‘we have audited’ to ‘we were engaged to audit’.
## 6. Basis for Opinion (When Modified)
The auditor shall:
- Amend the heading to ‘Basis for Qualified/Adverse/Disclaimer of Opinion’.
- Include a description of the matter giving rise to modification.
- Quantify the financial effects; if not practicable, state so.
- For misstated disclosure → explain how it is misstated.
- For non-disclosure of required info →
- Discuss with TCWG.
- Describe nature of omitted info in Basis section.
- Unless prohibited by law, include the omitted disclosures if practicable and SAAE has been obtained.
- If from inability to obtain SAAE → include reasons for that inability.
### When Disclaiming
Report shall NOT include:
- Statement about whether SAAE was obtained.
- Reference to the auditor's responsibilities section (in its standard form).
Even for adverse or disclaimer opinions, the auditor shall describe other matters of which they are aware that would have required modification, and their effects.
## 7. Auditor's Responsibilities Section When Disclaiming
Limited to:
- Statement that auditor's responsibility is to conduct audit of FS per SAs.
- Statement that auditor was not able to obtain SAAE.
- Statement re: independence and other ethical responsibilities.
## 8. Communication with TCWG
When the auditor expects to modify the opinion, he shall communicate to TCWG:
- The circumstances that led to the expected modification, and
- The wording of the modification.
## Quick Recall — 2x2 Matrix
- Misstated, not pervasive → Qualified
- Misstated, pervasive → Adverse
- Unable to obtain SAAE, not pervasive → Qualified
- Unable to obtain SAAE, pervasive → Disclaimer