SA 705 Modifications to Opinion
SA 705(Revised)*
Modifications to the Opinion in the
Independent Auditor’s Report
(Effective for audits of financial statements for periods
beginning on or after April 1, 2018)
Contents
Paragraph(s)
Introduction
Scope of this SA........................................................................................ 1
Types of Modified Opinions ...................................................................... 2
Effective Date ............................................................................................ 3
Objective .................................................................................................. 4
Definitions ................................................................................................ 5
Requirements
Circumstances When a Modification to the Auditor’s Opinion
is Required ................................................................................................ 6
Determining the Type of Modification to the Auditor’s Opinion ........... 7−15
Form and Content of the Auditor’s Report When the Opinion
is Modified ......................................................................................... 16−29
Communication with Those Charged with Governance .......................... 30
Application and Other Explanatory Material
Types of Modified Opinions .................................................................... A1
Circumstances When a Modification to the Auditor’s Opinion
is Required ..................................................................................... A2−A12
Determining the Type of Modification to the Auditor’s Opinion .... A13−A16
Form and Content of the Auditor’s Report When the Opinion
is Modified .................................................................................... A17−A26
Communication with Those Charged with Governance ........................ A27
Appendix: Illustrations of Auditor’s Reports with Modifications to the
Opinion
* Issued in May 2016.
Standard on Auditing (SA) 705 (Revised), “Modifications to the Opinion
in the Independent Auditor’s Report”, should be read in the context of the
“Preface to the Standards on Quality Control, Auditing, Review, Other
Assurance and Related Services”, which sets out the authority of SAs
and SA 200, “Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing”.
SA 705(Revised) 2
Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditor’s responsibility to
issue an appropriate report in circumstances when, in forming an opinion in
accordance with SA 700(Revised),1 the auditor concludes that a modification to
the auditor’s opinion on the financial statements is necessary. This SA also deals
with how the form and content of the auditor’s report is affected when the auditor
expresses a modified opinion. In all cases, the reporting requirements in SA 700
(Revised) apply, and are not repeated in this SA unless they are explicitly
addressed or amended by the requirements of this SA.
Types of Modified Opinions
2. This SA establishes three types of modified opinions, namely, a qualified
opinion, an adverse opinion, and a disclaimer of opinion. The decision regarding
which type of modified opinion is appropriate depends upon:
(a) The nature of the matter giving rise to the modification, that is, whether the
financial statements are materially misstated or, in the case of an inability to
obtain sufficient appropriate audit evidence, may be materially misstated;
and
(b) The auditor’s judgment about the pervasiveness of the effects or possible
effects of the matter on the financial statements. (Ref: Para. A1)
Effective Date
3. This SA is effective for audits of financial statements for periods beginning
on or after April 1, 2018.
Objective
4. The objective of the auditor is to express clearly an appropriately modified
opinion on the financial statements that is necessary when:
(a) The auditor concludes, based on the audit evidence obtained, that the
financial statements as a whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material
misstatement.
Definitions
1
SA 700(Revised), Forming an Opinion and Reporting on Financial Statements.
3 SA 705(Revised)
5. For purposes of the SAs, the following terms have the meanings attributed
below:
(a) Pervasive – A term used, in the context of misstatements, to describe the
effects on the financial statements of misstatements or the possible effects
on the financial statements of misstatements, if any, that are undetected
due to an inability to obtain sufficient appropriate audit evidence. 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.
(b) Modified opinion – A qualified opinion, an adverse opinion or a disclaimer of
opinion on the financial statements.
Requirements
Circumstances When a Modification to the Auditor’s Opinion is
Required
6. The auditor shall modify the opinion in the auditor’s report when:
(a) The auditor concludes that, based on the audit evidence obtained, the
financial statements as a whole are not free from material misstatement; or
(Ref: Para. A2–A7)
(b) The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material
misstatement. (Ref: Para. A8– A12)
Determining the Type of Modification to the Auditor’s Opinion
Qualified Opinion
7. The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements, individually or in the aggregate, are material,
but not pervasive, to the financial statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on
which to base the opinion, but the auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any,
could be material but not pervasive.
SA 705(Revised) 4
Adverse Opinion
8. 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.
Disclaimer of Opinion
9. The auditor shall disclaim an opinion when the auditor is unable to obtain
sufficient appropriate audit evidence on which to base the opinion, and the
auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive.
10. The auditor shall disclaim an opinion when, in extremely rare circumstances
involving multiple uncertainties, the auditor concludes that, notwithstanding
having obtained sufficient appropriate audit evidence regarding each of the
individual uncertainties, it is not possible to form an opinion on the financial
statements due to the potential interaction of the uncertainties and their possible
cumulative effect on the financial statements.
Consequence of an Inability to Obtain Sufficient Appropriate Audit
Evidence Due to a Management-Imposed Limitation after the Auditor Has
Accepted the Engagement
11. If, after accepting the engagement, the auditor becomes aware that
management has imposed a limitation on the scope of the audit that the auditor
considers likely to result in the need to express a qualified opinion or to disclaim
an opinion on the financial statements, the auditor shall request that
management remove the limitation.
12. If management refuses to remove the limitation referred to in paragraph 11
of this SA, the auditor shall communicate the matter to those charged with
governance, unless all of those charged with governance are involved in
managing the entity,2 and determine whether it is possible to perform alternative
procedures to obtain sufficient appropriate audit evidence.
13. If the auditor is unable to obtain sufficient appropriate audit evidence, the
auditor shall determine the implications as follows:
(a) If the auditor concludes that the possible effects on the financial statements
of undetected misstatements, if any, could be material but not pervasive,
the auditor shall qualify the opinion; or
(b) If the auditor concludes that the possible effects on the financial statements
of undetected misstatements, if any, could be both material and pervasive
2
SA 260 (Revised), Communication with Those Charged with Governance, paragraph 13.
5 SA 705(Revised)
so that a qualification of the opinion would be inadequate to communicate
the gravity of the situation, the auditor shall:
(i) Withdraw from the audit, where practicable and possible under
applicable law or regulation; or (Ref: Para. A13)
(ii) If withdrawal from the audit before issuing the auditor’s report is not
practicable or possible, disclaim an opinion on the financial
statements. (Ref. Para. A14)
14. If the auditor withdraws as contemplated by paragraph 13(b)(i), before
withdrawing, the auditor shall communicate to those charged with governance
any matters regarding misstatements identified during the audit that would have
given rise to a modification of the opinion. (Ref: Para. A15)
Other Considerations Relating to an Adverse Opinion or Disclaimer of
Opinion
15. 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. To include such an
unmodified opinion in the same report3 in these circumstances would contradict
the auditor’s adverse opinion or disclaimer of opinion on the financial statements
as a whole. (Ref: Para. A16)
Form and Content of the Auditor’s Report When the Opinion is
Modified
Auditor’s Opinion
16. When the auditor modifies the audit opinion, the auditor shall use the
heading “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as
appropriate, for the Opinion section. (Ref: Para. A17–A19)
Qualified Opinion
17. When the auditor expresses a qualified opinion due to a material
misstatement in the financial statements, the auditor shall state that, in the
auditor’s opinion, except for the effects of the matter(s) described in the Basis for
Qualified Opinion section:
(a) When reporting in accordance with a fair presentation framework, the
3
SA 805, Special Considerations—Audits of Single Financial Statements and Specific Elements,
Accounts or Items of a Financial Statement, deals with circumstances where the auditor is
engaged to express a separate opinion on one or more specific elements, accounts or items of a
financial statement.
SA 705(Revised) 6
accompanying financial statements present fairly, in all material respects
(or give a true and fair view of) […] in accordance with [the applicable
financial reporting framework]; or
(b) When reporting in accordance with a compliance framework, the
accompanying financial statements have been prepared, in all material
respects, in accordance with [the applicable financial reporting framework].
When the modification arises from an inability to obtain sufficient appropriate
audit evidence, the auditor shall use the corresponding phrase “except for the
possible effects of the matter(s) ...” for the modified opinion. (Ref: Para. A20)
Adverse Opinion
18. When the auditor expresses an adverse opinion, the auditor shall state that,
in the auditor’s opinion, because of the significance of the matter(s) described in
the Basis for Adverse Opinion section:
(a) When reporting in accordance with a fair presentation framework, the
accompanying financial statements do not present fairly (or give a true and
fair view of) […] in accordance with [the applicable financial reporting
framework]; or
(b) When reporting in accordance with a compliance framework, the
accompanying financial statements have not been prepared, in all material
respects, in accordance with [the applicable financial reporting framework].
Disclaimer of Opinion
19. When the auditor disclaims an opinion due to an inability to obtain sufficient
appropriate audit evidence, the auditor shall:
(a) State that the auditor does not express an opinion on the accompanying
financial statements;
(b) State that, because of the significance of the matter(s) described in the
Basis for Disclaimer of Opinion section, the auditor has not been able to
obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion on the financial statements; and
(c) Amend the statement required by paragraph 24(b) of SA 700 (Revised),
which indicates that the financial statements have been audited, to state
that the auditor was engaged to audit the financial statements.
Basis for Opinion
20. When the auditor modifies the opinion on the financial statements, the
auditor shall, in addition to the specific elements required by SA 700 (Revised):
7 SA 705(Revised)
(Ref: Para. A21)
(a) Amend the heading “Basis for Opinion” required by paragraph 28 of SA 700
(Revised) to “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or
“Basis for Disclaimer of Opinion,” as appropriate; and
(b) Within this section, include a description of the matter giving rise to the
modification.
21. If there is a material misstatement of the financial statements that relates to
specific amounts in the financial statements (including quantitative disclosures in
the notes to the financial statements), the auditor shall include in the Basis for
Opinion section a description and quantification of the financial effects of the
misstatement, unless impracticable. If it is not practicable to quantify the financial
effects, the auditor shall so state in this section. (Ref: Para. A22)
22. If there is a material misstatement of the financial statements that relates to
narrative disclosures, the auditor shall include in the Basis for Opinion section an
explanation of how the disclosures are misstated.
23. If there is a material misstatement of the financial statements that relates to
the non-disclosure of information required to be disclosed, the auditor shall:
(a) Discuss the non-disclosure with those charged with governance;
(b) Describe in the Basis for Opinion section the nature of the omitted
information; and
(c) Unless prohibited by law or regulation, include the omitted disclosures,
provided it is practicable to do so and the auditor has obtained sufficient
appropriate audit evidence about the omitted information. (Ref: Para. A23)
24. If the modification results from an inability to obtain sufficient appropriate
audit evidence, the auditor shall include in the Basis for Opinion section the
reasons for that inability.
25. When the auditor expresses a qualified or adverse opinion, the auditor shall
amend the statement about whether the audit evidence obtained is sufficient and
appropriate to provide a basis for the auditor’s opinion required by paragraph
28(d) of SA 700(Revised) to include the word “qualified” or “adverse”, as
appropriate.
26. When the auditor disclaims an opinion on the financial statements, the
auditor’s report shall not include the elements required by paragraphs 28(b) and
28(d) of SA 700 (Revised). Those elements are:
(a) A reference to the section of the auditor’s report where the auditor’s
responsibilities are described; and
SA 705(Revised) 8
(b) A statement about whether the audit evidence obtained is sufficient and
appropriate to provide a basis for the auditor’s opinion.
27. Even if the auditor has expressed an adverse opinion or disclaimed an
opinion on the financial statements, the auditor shall describe in the Basis for
Opinion section the reasons for any other matters of which the auditor is aware
that would have required a modification to the opinion, and the effects thereof.
(Ref: Para. A24)
Description of Auditor’s Responsibilities for the Audit of the Financial Statements
When the Auditor Disclaims an Opinion on the Financial Statements
28. When the auditor disclaims an opinion on the financial statements due to
an inability to obtain sufficient appropriate audit evidence, the auditor shall
amend the description of the auditor’s responsibilities required by paragraphs
39–41 of SA 700 (Revised) to include only the following: (Ref: Para. A25)
(a) A statement that the auditor’s responsibility is to conduct an audit of the
entity’s financial statements in accordance with Standards on Auditing and
to issue an auditor’s report;
(b) A statement that, however, because of the matter(s) described in the Basis
for Disclaimer of Opinion section, the auditor was not able to obtain
sufficient appropriate audit evidence to provide a basis for an audit opinion
on the financial statements; and
(c) The statement about auditor independence and other ethical
responsibilities required by paragraph 28(c) of SA 700 (Revised).
Considerations When the Auditor Disclaims an Opinion on the Financial
Statements
29. 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 SA 7014 or an Other Information section in
accordance with SA 720 (Revised).5 (Ref: Para. A26)
Communication with Those Charged with Governance
30. 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. (Ref: Para. A27)
***
4
SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report, paragraphs 11–
13.
5
SA 720(Revised), “The Auditor’s Responsibilities Relating to Other Information”, paragraph A58.
9 SA 705(Revised)
Application and Other Explanatory Material
Types of Modified Opinions (Ref: Para. 2)
A1. The table below illustrates how the auditor’s judgment about the nature of
the matter giving rise to the modification, and the pervasiveness of its effects or
possible effects on the financial statements, affects the type of opinion to be
expressed.
Auditor’s Judgment about the Pervasiveness
of the Effects or Possible Effects on the
Nature of Matter Giving
Financial Statements
Rise to the Modification
Material but Not
Material and Pervasive
Pervasive
Financial statements are
Qualified opinion Adverse opinion
materially misstated
Inability to obtain sufficient
Qualified opinion Disclaimer of opinion
appropriate audit evidence
Circumstances When a Modification to the Auditor’s Opinion is
Required
Nature of Material Misstatements (Ref: Para. 6(a))
A2. SA 700 (Revised) requires the auditor, in order to form an opinion on the
financial statements, to conclude as to whether reasonable assurance has been
obtained about whether the financial statements as a whole are free from
material misstatement.6 This conclusion takes into account the auditor’s
evaluation of uncorrected misstatements, if any, on the financial statements in
accordance with SA 450.7
A3. SA 450 defines a misstatement as a difference between the amount,
classification, presentation, or disclosure of a reported financial statement item
and the amount, classification, presentation, or disclosure that is required for the
item to be in accordance with the applicable financial reporting framework.
Accordingly, a material misstatement of the financial statements may arise in
relation to:
(a) The appropriateness of the selected accounting policies;
6
SA 700 (Revised), paragraph 11.
7
SA 450, Evaluation of Misstatements Identified during the Audit, paragraph 11.
SA 705(Revised) 10
(b) The application of the selected accounting policies; or
(c) The appropriateness or adequacy of disclosures in the financial statements.
Appropriateness of the Selected Accounting Policies
A4. In relation to the appropriateness of the accounting policies management
has selected, material misstatements of the financial statements may arise when:
(a) The selected accounting policies are not consistent with the applicable
financial reporting framework; or
(b) The financial statements, including the related notes, do not represent the
underlying transactions and events in a manner that achieves fair
presentation.
A5. Financial reporting frameworks often contain requirements for the
accounting for, and disclosure of, changes in accounting policies. Where the
entity has changed its selection of significant accounting policies, a material
misstatement of the financial statements may arise when the entity has not
complied with these requirements.
Application of the Selected Accounting Policies
A6. In relation to the application of the selected accounting policies, material
misstatements of the financial statements may arise:
(a) When management has not applied the selected accounting policies
consistently with the financial reporting framework, including when
management has not applied the selected accounting policies consistently
between periods or to similar transactions and events (consistency in
application); or
(b) Due to the method of application of the selected accounting policies (such
as an unintentional error in application).
Appropriateness or Adequacy of Disclosures in the Financial Statements
A7. In relation to the appropriateness or adequacy of disclosures in the
financial statements, material misstatements of the financial statements may
arise when:
(a) The financial statements do not include all of the disclosures required by
the applicable financial reporting framework;
(b) The disclosures in the financial statements are not presented in accordance
with the applicable financial reporting framework; or
(c) The financial statements do not provide the disclosures necessary to
achieve fair presentation.
11 SA 705(Revised)
Nature of an Inability to Obtain Sufficient Appropriate Audit Evidence (Ref:
Para. 6(b))
A8. The auditor’s inability to obtain sufficient appropriate audit evidence (also
referred to as a limitation on the scope of the audit) may arise from:
(a) Circumstances beyond the control of the entity;
(b) Circumstances relating to the nature or timing of the auditor’s work; or
(c) Limitations imposed by management.
A9. An inability to perform a specific procedure does not constitute a limitation
on the scope of the audit if the auditor is able to obtain sufficient appropriate
audit evidence by performing alternative procedures. If this is not possible, the
requirements of paragraphs 7(b) and 9–10 apply as appropriate. Limitations
imposed by management may have other implications for the audit, such as for
the auditor’s assessment of fraud risks and consideration of engagement
continuance.
A10. Examples of circumstances beyond the control of the entity include when:
The entity’s accounting records have been destroyed.
The accounting records of a significant component have been seized
indefinitely by governmental authorities.
A11. Examples of circumstances relating to the nature or timing of the auditor’s
work include when:
The entity is required to use the equity method of accounting for an
associated entity, and the auditor is unable to obtain sufficient appropriate
audit evidence about the latter’s financial information to evaluate whether
the equity method has been appropriately applied.
The timing of the auditor’s appointment is such that the auditor is unable to
observe the counting of the physical inventories.
The auditor determines that performing substantive procedures alone is not
sufficient, but the entity’s controls are not effective.
A12. Examples of an inability to obtain sufficient appropriate audit evidence
arising from a limitation on the scope of the audit imposed by management
include when:
Management prevents the auditor from observing the counting of the
physical inventory.
Management prevents the auditor from requesting external confirmation of
specific account balances.
SA 705(Revised) 12
Determining the Type of Modification to the Auditor’s Opinion
Consequence of an Inability to Obtain Sufficient Appropriate Audit
Evidence Due to a Management-Imposed Limitation after the Auditor Has
Accepted the Engagement (Ref: Para. 13(b)(i)–14)
A13. The practicality of withdrawing from the audit may depend on the stage of
completion of the engagement at the time that management imposes the scope
limitation. If the auditor has substantially completed the audit, the auditor may
decide to complete the audit to the extent possible, disclaim an opinion and
explain the scope limitation within the Basis for Disclaimer of Opinion section
prior to withdrawing.
A14. In certain circumstances, withdrawal from the audit may not be possible if
the auditor is required by law or regulation to continue the audit engagement.
This may be the case for an auditor that is appointed to audit the financial
statements of public sector entities. It may also be the case in entities where the
auditor is appointed to audit the financial statements covering a specific period,
or appointed for a specific period and is prohibited from withdrawing before the
completion of the audit of those financial statements or before the end of that
period, respectively. The auditor may also consider it necessary to include an
Other Matter paragraph in the auditor’s report.8
A15. When the auditor concludes that withdrawal from the audit is necessary
because of a scope limitation, there may be a professional, legal or regulatory
requirement for the auditor to communicate matters relating to the withdrawal
from the engagement to regulators or the entity’s owners.
Other Considerations Relating to an Adverse Opinion or Disclaimer of
Opinion (Ref: Para. 15)
A16. The following are examples of reporting circumstances that would not
contradict the auditor’s adverse opinion or disclaimer of opinion:
The expression of an unmodified opinion on financial statements prepared
under a given financial reporting framework and, within the same report, the
expression of an adverse opinion on the same financial statements under a
different financial reporting framework.9
The expression of a disclaimer of opinion regarding the results of
operations, and cash flows, where relevant, and an unmodified opinion
8
SA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report, paragraph A10.
9
See paragraph A25 of SA 700 (Revised) for a description of this circumstance.
13 SA 705(Revised)
regarding the financial position (see SA 51010). In this case, the auditor has
not expressed a disclaimer of opinion on the financial statements as a
whole.
Form and Content of the Auditor’s Report When the Opinion is
Modified
Illustrative Auditor’s Reports (Ref: Para. 16)
A17. Illustrations 1 and 2 in the Appendix contain auditor’s reports with qualified
and adverse opinions, respectively, as the financial statements are materially
misstated.
A18. Illustration 3 in the Appendix contains an auditor’s report with a qualified
opinion as the auditor is unable to obtain sufficient appropriate audit evidence.
Illustration 4 contains a disclaimer of opinion due to an inability to obtain
sufficient appropriate audit evidence about a single element of the financial
statements. Illustration 5 contains a disclaimer of opinion due to an inability to
obtain sufficient appropriate audit evidence about multiple elements of the
financial statements. In each of the latter two cases, the possible effects on the
financial statements of the inability are both material and pervasive. The
Appendices to other SAs that include reporting requirements, including SA 570
(Revised),11 also include illustrations of auditor’s reports with modified opinions.
Auditor’s Opinion (Ref: Para. 16)
A19. Amending this heading makes it clear to the user that the auditor’s opinion
is modified and indicates the type of modification.
Qualified Opinion (Ref: Para. 17)
A20. When the auditor expresses a qualified opinion, it would not be
appropriate to use phrases such as “with the foregoing explanation” or “subject
to” in the Opinion section as these are not sufficiently clear or forceful.
Basis for Opinion (Ref: Para. 20, 21, 23, 27)
A21. Consistency in the auditor’s report helps to promote users’ understanding
and to identify unusual circumstances when they occur. Accordingly, although
uniformity in the wording of a modified opinion and in the description of the
reasons for the modification may not be possible, consistency in both the form
and content of the auditor’s report is desirable.
A22. An example of the financial effects of material misstatements that the
auditor may describe within the Basis for Opinion section in the auditor’s report is
10
SA 510, Initial Audit Engagements ― Opening Balances, paragraph 10 and A5.
11
SA 570 (Revised), Going Concern.
SA 705(Revised) 14
the quantification of the effects on income tax, income before taxes, net income
and equity if inventory is overstated.
A23. Disclosing the omitted information within the Basis for Opinion section
would not be practicable if:
(a) The disclosures have not been prepared by management or the disclosures
are otherwise not readily available to the auditor; or
(b) In the auditor’s judgment, the disclosures would be unduly voluminous in
relation to the auditor’s report.
A24. An adverse opinion or a disclaimer of opinion relating to a specific matter
described within the Basis for Opinion section does not justify the omission of a
description of other identified matters that would have otherwise required a
modification of the auditor’s opinion. In such cases, the disclosure of such other
matters of which the auditor is aware may be relevant to users of the financial
statements.
Description of Auditor’s Responsibilities for the Audit of the Financial
Statements When the Auditor Disclaims an Opinion on the Financial
Statements (Ref: Para. 28)
A25. When the auditor disclaims an opinion on the financial statements, the
following statements are better positioned within the Auditor’s Responsibilities for
the Audit of the Financial Statements section of the auditor’s report, as illustrated
in Illustrations 4–5 of the Appendix to this SA:
The statement required by paragraph 28(a) of SA 700 (Revised), amended
to state that the auditor’s responsibility is to conduct an audit of the entity’s
financial statements in accordance with SAs; and
The statement required by paragraph 28(c) of SA 700 (Revised) about
independence and other ethical responsibilities.
Considerations When the Auditor Disclaims an Opinion on the Financial
Statements (Ref: Para. 29)
A26. Providing the reasons for the auditor’s inability to obtain sufficient
appropriate audit evidence within the Basis for Disclaimer of Opinion section of
the auditor’s report provides useful information to users in understanding why the
auditor has disclaimed an opinion on the financial statements and may further
guard against inappropriate reliance on them. However, communication of any
key audit matters other than the matter(s) giving rise to the disclaimer of opinion
may suggest that the financial statements as a whole are more credible in
15 SA 705(Revised)
relation to those matters than would be appropriate in the circumstances, and
would be inconsistent with the disclaimer of opinion on the financial statements
as a whole. Similarly, it would not be appropriate to include an Other Information
section in accordance with SA 720(Revised) addressing the auditor’s
consideration of the consistency of the other information with the financial
statements. Accordingly, paragraph 29 of this SA prohibits a Key Audit Matters
section or an Other Information section from being included in the auditor’s report
when the auditor disclaims an opinion on the financial statements, unless the
auditor is otherwise required by law or regulation to communicate key audit
matters or to report on other information.
Communication with Those Charged with Governance (Ref: Para. 30)
A27. Communicating with those charged with governance the circumstances
that lead to an expected modification to the auditor’s opinion and the wording of
the modification enables:
(a) The auditor to give notice to those charged with governance of the intended
modification(s) and the reasons (or circumstances) for the modification(s);
(b) The auditor to seek the concurrence of those charged with governance
regarding the facts of the matter(s) giving rise to the expected
modification(s), or to confirm matters of disagreement with management as
such; and
(c) Those charged with governance to have an opportunity, where appropriate,
to provide the auditor with further information and explanations in respect of
the matter(s) giving rise to the expected modification(s).
SA 705(Revised) 16
Appendix
(Ref: Para. A17–A18, A25)
Illustrations of Auditor’s Reports with Modifications to the Opinion
• Illustration 1: An auditor’s report containing a qualified opinion due to a
material misstatement of the financial statements.
• Illustration 2: An auditor’s report containing an adverse opinion due to a
material misstatement of the consolidated financial statements.
• Illustration 3: An auditor’s report containing a qualified opinion due to the
auditor’s inability to obtain sufficient appropriate audit evidence regarding
a foreign associate.
• Illustration 4: An auditor’s report containing a disclaimer of opinion due to
the auditor’s inability to obtain sufficient appropriate audit evidence about
a single element of the consolidated financial statements.
• Illustration 5: An auditor’s report containing a disclaimer of opinion due to
the auditor’s inability to obtain sufficient appropriate audit evidence about
multiple elements of the financial statements.
17 SA 705(Revised)
Illustration 1 – Qualified Opinion due to a Material Misstatement of the
Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
Audit of a complete set of financial statements of a listed company
(registered under the Companies Act, 2013) using a fair presentation
framework. The audit is not a group audit (i.e., SA 600 does not apply)
The financial statements are prepared by management of the company in
accordance with the Accounting Standards prescribed under section 133 of
the Companies Act, 2013 (a general purpose framework).
The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in SA 210.12
Inventories are misstated. The misstatement is deemed to be material but
not pervasive to the financial statements (i.e., a qualified opinion is
appropriate).
The relevant ethical requirements that apply to the audit are the ICAI’s
Code of Ethics and the provisions of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has concluded that a
material uncertainty does not exist related to events or conditions that may
cast significant doubt on the company’s ability to continue as a going
concern in accordance with SA 570 (Revised).
Key audit matters have been communicated in accordance with SA 701.
The auditor has obtained all of the other information prior to the date of the
auditor’s report and the matter giving rise to the qualified opinion on the
financial statements also affects the other information.
Those responsible for oversight of the financial statements differ from those
responsible for the preparation of the financial statements.
In addition to the audit of the financial statements, the auditor has other
reporting responsibilities required under the Companies Act, 2013.
12
SA 210, Agreeing the Terms of Audit Engagements.
SA 705(Revised) 18
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial Statements
Qualified Opinion
We have audited the standalone financial statements of ABC Company Limited
(“the Company”), which comprise the balance sheet as at March 31, 20XX, and
the statement of Profit and Loss, (statement of changes in equity)13 and the
statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other
explanatory information (in which are included the Returns for the year ended on
that date audited by the branch auditors of the Company’s branches located at
(location of branches))14.
In our opinion and to the best of our information and according to the
explanations given to us, except for the effects of the matter described in the
Basis for Qualified Opinion section of our report, the aforesaid financial
statements give the information required by the Companies Act 2013 in the
manner so required and give a true and fair view in conformity with the
accounting principles generally accepted in India, of the state of affairs of the
Company as at March 31st, 20XX and its profit/loss, (changes in equity)15 and its
cash flows for the year ended on that date.
Basis for Qualified Opinion
The Company’s inventories are carried in the Balance Sheet at Rs. XXX.
Management has not stated the inventories at the lower of cost and net
realizable value but has stated them solely at cost, which constitutes a departure
from the Accounting Standards prescribed under section 133 of the Companies
Act, 2013. The Company’s records indicate that, had management stated the
inventories at the lower of cost and net realizable value, an amount of Rs. xxx
would have been required to write the inventories down to their net realizable
value. Accordingly, cost of sales would have been increased by Rs. xxx, and
income tax, net income and shareholders’ funds would have been reduced by
Rs. xxx, Rs. xxx and Rs. xxx, respectively.
We conducted our audit in accordance with the Standards on Auditing (SAs)
specified under section 143(10) of the Companies Act, 2013. Our responsibilities
under those Standards are further described in the Auditor’s Responsibilities for
13 Where applicable.
14 Where applicable.
15
Where applicable.
19 SA 705(Revised)
the Audit of the Financial Statements section of our report. We are independent
of the Company in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical requirements that are
relevant to our audit of the financial statements under the provisions of the
Companies Act, 2013 and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the ICAI’s Code of Ethics. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our qualified opinion.
Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720 (Revised) –
see Illustration 6 in Appendix 2 of SA 720 (Revised).
The last paragraph of the other information section in Illustration 6 would be
customized to describe the specific matter giving rise to the qualified opinion that
also affects the other information.]
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current period.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter described
in the Basis for Qualified Opinion section we have determined the matters
described below to be the key audit matters to be communicated in our report.
[Description of each key audit matter in accordance with SA 701.]
Responsibilities of Management and Those Charged with Governance for
the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700
(Revised).]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700
(Revised).]
Other Matter16
We did not audit the financial statements/information of ________(number)
branches included in the standalone financial statements of the Company whose
16
Where applicable.
SA 705(Revised) 20
financial statements / financial information reflect total assets of Rs.______ as at
31st March, 20XX and total revenues of Rs._______ for the year ended on that
date, as considered in the standalone financial statements. The financial
statements/information of these branches have been audited by the branch
auditors whose reports have been furnished to us, and our opinion in so far as it
relates to the amounts and disclosures included in respect of these branches, is
based solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700
(Revised).]
While reporting under Section 143(3) of the Companies Act, 2013, the auditor is
required to suitably reword the wordings given in the Illustration in SA
700(Revised) to meet the circumstances of the audit.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation17)
(Membership No.)
Place of Signature:
Date:
17
Partner or Proprietor, as the case may be
21 SA 705(Revised)
Illustration 2 – Adverse Opinion due to a Material Misstatement of the
Consolidated Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
Audit of a complete set of consolidated financial statements of a listed
company (registered under the Companies Act, 2013) using a fair
presentation framework. The audit is a group audit of an entity with
subsidiaries (i.e., SA 600 applies).
The consolidated financial statements are prepared by management of the
entity in accordance with the Accounting Standards prescribed under
section 133 of the Companies Act, 2013 (a general purpose framework).
The terms of the audit engagement reflect the description of management’s
responsibility for the consolidated financial statements in SA 210.
The consolidated financial statements are materially misstated due to the
non-consolidation of a subsidiary. The material misstatement is deemed to
be pervasive to the consolidated financial statements. The effects of the
misstatement on the consolidated financial statements have not been
determined because it was not practicable to do so (i.e., an adverse opinion
is appropriate).
The relevant ethical requirements that apply to the audit are the ICAI’s
Code of Ethics and the provisions of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has concluded that a
material uncertainty does not exist related to events or conditions that may
cast significant doubt on the entity’s ability to continue as a going concern
in accordance with SA 570 (Revised).
SA 701 applies; however, the auditor has determined that there are no key
audit matters other than the matter described in the Basis for Adverse
Opinion section.
The auditor has obtained all of the other information prior to the date of the
auditor’s report and the matter giving rise to the adverse opinion on the
consolidated financial statements also affects the other information
Those responsible for oversight of the consolidated financial statements
differ from those responsible for the preparation of the consolidated
financial statements.
In addition to the audit of the consolidated financial statements, the auditor
has other reporting responsibilities required under the Companies Act,
2013.
SA 705(Revised) 22
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial Statements
Adverse Opinion
We have audited the accompanying consolidated financial statements of ABC
Company Limited (hereinafter referred to as the “Holding Company”) and its
subsidiaries (the Holding Company and its subsidiaries together referred to as
“the Group”), its associates and jointly controlled entities, which comprise the
consolidated balance sheet as at March 31, 20XX, the consolidated statement of
profit and Loss, (consolidated statement of changes in equity)18 and the
consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting
policies (hereinafter referred to as the “consolidated financial statements”).
In our opinion and to the best of our information and according to the
explanations given to us, because of the significance of the matter discussed in
the Basis for Adverse Opinion section of our report, the accompanying
consolidated financial statements do not give a true and fair view in conformity
with the accounting principles generally accepted in India, of the consolidated
state of affairs of the Group, its associates and jointly controlled entities, as at
March 31, 20XX, of its consolidated profit/loss, (consolidated position of changes
in equity)19 and the consolidated cash flows for the year then ended.
Basis for Adverse Opinion
As explained in Note X, the Group has not consolidated subsidiary XYZ
Company that the Group acquired during 20XX because it has not yet been able
to determine the fair values of certain of the subsidiary’s material assets and
liabilities at the acquisition date. This investment is therefore accounted for on a
cost basis. Under the accounting principles generally accepted in India, the
Group should have consolidated this subsidiary and accounted for the acquisition
based on provisional amounts. Had XYZ Company been consolidated, many
elements in the accompanying consolidated financial statements would have
been materially affected. The effects on the consolidated financial statements of
the failure to consolidate have not been determined.
We conducted our audit in accordance with the Standards on Auditing (SAs)
specified under section 143(10) of the Companies Act, 2013. Our responsibilities
18
Where applicable.
19
Where applicable.
23 SA 705(Revised)
under those Standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Group, its associates and jointly controlled entities, in
accordance with the Code of Ethics and provisions of the Companies Act, 2013
that are relevant to our audit of the consolidated financial statements in India
under the Companies Act, 2013, and we have fulfilled our other ethical
responsibilities in accordance with the Code of Ethics and the requirements
under the Companies act, 2013. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our adverse opinion.
Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720 (Revised) –
see Illustration 7 in Appendix 2 of SA 720 (Revised).
The last paragraph of the other information section in Illustration 7 would be
customized to describe the specific matter giving rise to the adverse opinion that
also affects the other information.]
Key Audit Matters
Except for the matter described in the Basis for Adverse Opinion section, we
have determined that there are no other key audit matters to communicate in our
report.
Responsibilities of Management and Those Charged with Governance for
the Consolidated Financial Statements20
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
While reporting under Section 143(3) of the Companies Act, 2013, the auditor is
20
Or other terms that are appropriate in the context of the legal framework in the particular
jurisdiction.
SA 705(Revised) 24
required to suitably reword the wordings given in the Illustration in SA
700(Revised) to meet the circumstances of the audit.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation21)
(Membership No.)
Place of Signature:
Date:
21
Partner or Proprietor, as the case may be.
25 SA 705(Revised)
Illustration 3 – Qualified Opinion due to the Auditor’s Inability to Obtain
Sufficient Appropriate Audit Evidence Regarding a Foreign Associate
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
Audit of a complete set of consolidated financial statements of a listed
Company (registered under the Companies Act, 2013) using a fair
presentation framework. The audit is a group audit of an entity with
subsidiaries, associates and jointly controlled entities (i.e., SA 600 applies).
The consolidated financial statements are prepared by management of the
entity in accordance with the Accounting Standards prescribed under section
133 of the Companies Act, 2013.
The terms of the audit engagement reflect the description of management’s
responsibility for the consolidated financial statements in SA 210.
The auditor was unable to obtain sufficient appropriate audit evidence
regarding an investment in a foreign associate. The possible effects of the
inability to obtain sufficient appropriate audit evidence are deemed to be
material but not pervasive to the consolidated financial statements (i.e., a
qualified opinion is appropriate).
The relevant ethical requirements that apply to the audit are the ICAI’s Code
of Ethics and the relevant provisions of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has concluded that a
material uncertainty does not exist related to events or conditions that may
cast significant doubt on the entity’s ability to continue as a going concern in
accordance with SA 570 (Revised).
Key audit matters have been communicated in accordance with SA 701.
The auditor has obtained all of the other information prior to the date of the
auditor’s report and the matter giving rise to the qualified opinion on the
consolidated financial statements also affects the other information
Those responsible for oversight of the consolidated financial statements
differ from those responsible for the preparation of the consolidated financial
statements.
In addition to the audit of the consolidated financial statements, the auditor
has other reporting responsibilities required under the Companies Act, 2013.
SA 705(Revised) 26
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial Statements
Qualified Opinion
We have audited the accompanying consolidated financial statements of ABC
Company Limited (hereinafter referred to as the “Holding Company”) and its
subsidiaries (the Holding Company and its subsidiaries together referred to as
“the Group”), its associates and jointly controlled entities, which comprise the
consolidated balance sheet as at March 31, 20XX, and the consolidated
statement of Profit and Loss, (consolidated statement of changes in equity)22 and
consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting
policies (hereinafter referred to as “the consolidated financial statements”).
In our opinion and to the best of our information and according to the
explanations given to us, except for the possible effects of the matter described
in the Basis for Qualified Opinion section of our report, the aforesaid
consolidated financial statements give the information required by the
Companies Act 2013 in the manner so required and give a true and fair view in
conformity with the accounting principles generally accepted in India, of the
consolidated state of affairs of the Group, its associates and jointly controlled
entities, as at March 31, 20XX, consolidated profit/loss, (consolidated changes in
equity)23, and consolidated cash flows for the year then ended.
Basis for Qualified Opinion
The Group’s investment in XYZ Company, a foreign associate acquired during
the year and accounted for by the equity method, is carried at Rs. XXX on the
consolidated balance sheet as at March 31, 20XX, and ABC’s share of XYZ’s net
income of Rs. XXX is included in ABC’s income for the year then ended. We
were unable to obtain sufficient appropriate audit evidence about the carrying
amount of ABC’s investment in XYZ as at March 31, 20XX and ABC’s share of
XYZ’s net income for the year because we were denied access to the financial
information, management, and the auditors of XYZ. Consequently, we were
unable to determine whether any adjustments to these amounts were necessary.
We conducted our audit in accordance with the Standards on Auditing (SAs)
specified under section 143(10) of the Companies Act, 2013. Our responsibilities
22
Where applicable.
23
Where applicable.
27 SA 705(Revised)
under those Standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Group, its associates and jointly controlled entities in
accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in India in terms of the Code of Ethics issued
by the Institute of Chartered Accountants of India and the relevant provisions of
the Companies Act, 2013, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our qualified
opinion.
Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720 (Revised) –
see Illustration 6 in Appendix 2 of SA 720 (Revised).
The last paragraph of the other information section in Illustration 6 would be
customized to describe the specific matter giving rise to the qualified opinion that
also affects the other information.]
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the consolidated financial statements of the
current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. In addition to the
matter described in the Basis for Qualified Opinion section, we have determined
the matters described below to be the key audit matters to be communicated in
our report.
[Description of each key audit matter in accordance with SA 701.]
Responsibilities of Management and Those Charged with Governance for
the Consolidated Financial Statements24
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
24
Or other terms that are appropriate in the context of the legal framework in the particular
jurisdiction
SA 705(Revised) 28
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
While reporting under Section 143(3) of the Companies Act, 2013, the auditor is
required to suitably reword the wordings given in the Illustration in SA
700(Revised) to meet the circumstances of the audit.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation25)
(Membership No.)
Place of Signature:
Date:
25
Partner or Proprietor, as the case may be.
29 SA 705(Revised)
Illustration 4 – Disclaimer of Opinion due to the Auditor’s Inability to Obtain
Sufficient Appropriate Audit Evidence about a Single Element of the
Consolidated Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
Audit of a complete set of consolidated financial statements of an unlisted
Company (registered under the Companies Act, 2013) using a fair
presentation framework. The audit is a group audit of an entity with
subsidiaries (i.e., SA 600 applies).
The consolidated financial statements are prepared by management of the
entity in accordance with the Accounting Standards prescribed under
section 133 of the Companies Act, 2013(a general purpose framework).
The terms of the audit engagement reflect the description of management’s
responsibility for the consolidated financial statements in SA 210.
The auditor was unable to obtain sufficient appropriate audit evidence
about a single element of the consolidated financial statements. That is, the
auditor was unable to obtain audit evidence about the financial information
of a joint venture investment that represents over 90% of the entity’s net
assets. The possible effects of this inability to obtain sufficient appropriate
audit evidence are deemed to be both material and pervasive to the
consolidated financial statements (i.e., a disclaimer of opinion is
appropriate).
The relevant ethical requirements that apply to the audit are the ICAI’s
Code of Ethics and the provisions of the Companies Act, 2013.
Those responsible for oversight of the consolidated financial statements
differ from those responsible for the preparation of the consolidated
financial statements.
A more limited description of the auditor’s responsibilities section is
required.
In addition to the audit of the consolidated financial statements, the auditor
has other reporting responsibilities required under the Companies Act,
2013
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
SA 705(Revised) 30
Report on the Audit of the Consolidated Financial Statements
Disclaimer of Opinion
We were engaged to audit the accompanying consolidated financial statements
of ABC Company Limited (hereinafter referred to as the “Holding Company”) and
its subsidiaries (the Holding Company and its subsidiaries together referred to as
“the Group), which comprise the consolidated balance sheet as at March 31,
20XX, the consolidated statement of Profit and Loss, (consolidated statement of
changes in equity26) and consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements, including a summary
of significant accounting policies (hereinafter referred to as the “Consolidated
Financial Statements”).
We do not express an opinion on the accompanying consolidated financial
statements of the Group. Because of the significance of the matter described in
the Basis for Disclaimer of Opinion section of our report, we have not been able
to obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion on these consolidated financial statements.
Basis for Disclaimer of Opinion
The Group’s investment in its joint venture XYZ Company is carried at Rs. xxx on
the Group’s consolidated balance sheet, which represents over 90% of the
Group’s net assets as at March 31, 20XX. We were not allowed access to the
management and the auditors of XYZ Company. As a result, we were unable to
determine whether any adjustments were necessary in respect of the Group’s
proportional share of XYZ Company’s assets that it controls jointly, its
proportional share of XYZ Company’s liabilities for which it is jointly responsible,
its proportional share of XYZ’s income and expenses for the year, (and the
elements making up the consolidated statement of changes in equity27) and the
consolidated cash flow statement.
Responsibilities of Management and Those Charged with Governance for
the Consolidated Financial Statements28
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements
Our responsibility is to conduct an audit of the Group’s consolidated financial
26
Where applicable.
27
Where applicable.
28
Or other terms that are appropriate in the context of the legal framework of the particular
jurisdiction.
31 SA 705(Revised)
statements in accordance with Standards on Auditing and to issue an auditor’s
report. However, because of the matter described in the Basis for Disclaimer of
Opinion section of our report, we were not able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on these consolidated
financial statements.
We are independent of the Group in accordance with the Code of Ethics and
provisions of the Companies Act, 2013 that are relevant to our audit of the
consolidated financial statements in India under the Companies Act, 2013, and
we have fulfilled our other ethical responsibilities in accordance with the Code of
Ethics and the requirements under the Companies act, 2013.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 2 in SA 700
(Revised).]
While reporting under Section 143(3) of the Companies Act, 2013, the auditor is
required to suitably reword the wordings given in the Illustration in SA
700(Revised) to meet the circumstances of the audit.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation29)
(Membership No.)
Place of Signature:
Date:
29
Partner or Proprietor, as the case may be.
SA 705(Revised) 32
Illustration 5 – Disclaimer of Opinion due to the Auditor’s Inability to Obtain
Sufficient Appropriate Audit Evidence about Multiple Elements of the
Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
Audit of a complete set of financial statements of a non-corporate entity
using a fair presentation framework. The audit is not a group audit (i.e., SA
600, does not apply).
The financial statements are prepared by management of the entity in
accordance with the Accounting Standards issued by the Institute of
Chartered Accountants of India (a general purpose framework).
The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in SA 210.
The auditor was unable to obtain sufficient appropriate audit evidence about
multiple elements of the financial statements, that is, the auditor was unable
to obtain audit evidence about the entity’s inventories and accounts
receivable. The possible effects of this inability to obtain sufficient
appropriate audit evidence are deemed to be both material and pervasive to
the financial statements (i.e., a disclaimer of opinion is appropriate).
The relevant ethical requirements that apply to the audit are ICAI’s Code of
Ethics and applicable law and regulation.
Those responsible for oversight of the financial statements differ from those
responsible for the preparation of the financial statements.
A more limited description of the auditor’s responsibilities section is required.
The auditor has no other reporting responsibilities required under local law.
INDEPENDENT AUDITOR’S REPORT
To the Partners of ABC & Associates
Disclaimer of Opinion
We were engaged to audit the financial statements of ABC & Associates (“the
entity”), which comprise the balance sheet as at March 31, 20X1, the statement
of Profit and Loss, and (statement of cash flows)30 for the year then ended, and
30
Where Applicable.
33 SA 705(Revised)
notes to the financial statements, including a summary of significant accounting
policies.
We do not express an opinion on the accompanying financial statements of the
entity. Because of the significance of the matters described in the Basis for
Disclaimer of Opinion section of our report, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an audit opinion on
these financial statements.
Basis for Disclaimer of Opinion
We were not appointed as auditors of the entity until after March 31, 20X1 and
thus did not observe the counting of physical inventories at the beginning and
end of the year. We were unable to satisfy ourselves by alternative means
concerning the inventory quantities held at March 31, 20X0 and 20X1, which are
stated in the Balance Sheets at Rs XXX and Rs XXX, respectively. In addition,
the introduction of a new computerized accounts receivable system in November
20X0 resulted in numerous errors in accounts receivable. As of the date of our
report, management was still in the process of rectifying the system deficiencies
and correcting the errors. We were unable to confirm or verify by alternative
means accounts receivable included in the Balance Sheet at a total amount of
Rs xxx as at March 31, 20X1. As a result of these matters, we were unable to
determine whether any adjustments might have been found necessary in respect
of recorded or unrecorded inventories and accounts receivable, and the
elements making up the statement of Profit and Loss (and statement of cash
flows)31.
Responsibilities of Management and Those Charged with Governance for
the Financial Statements32
[Reporting in accordance with SA 700 (Revised) – see Illustration 4 in SA 700
(Revised).]
Auditor’s Responsibilities for the Audit of the Financial Statements
Our responsibility is to conduct an audit of the entity’s financial statements in
accordance with Standards on Auditing issued by ICAI and to issue an auditor’s
report. However, because of the matters described in the Basis for Disclaimer of
Opinion section of our report, we were not able to obtain sufficient appropriate
31
Where applicable.
32
Or other terms that are appropriate in the context of the legal framework of the particular
jurisdiction.
SA 705(Revised) 34
audit evidence to provide a basis for an audit opinion on these financial
statements.
We are independent of the entity in accordance with the ethical requirements in
accordance with the requirements of the Code of Ethics issued by ICAI and the
ethical requirements as prescribed under the laws and regulations applicable to
the entity.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation33)
(Membership No.)
Place of Signature:
Date:
33
Partner or Proprietor, as the case may be.
35 SA 705(Revised)