- 10 Marks
Question
c) According to ISA 705: Modification of the auditor’s report, the auditor’s opinion on financial statements other than unmodified opinion depends on his/her judgement on two major circumstances.
Required:
i) State the TWO (2) circumstances that may result in an audit opinion being modified. (2 marks)
ii) Discuss the types of opinion that may be issued under each of the two circumstances. (8 marks)
Answer
c)
i) Two circumstances that may result in a modified audit opinion:
- Financial statements are materially misstated: When there is evidence that the financial statements contain material misstatements.
- Inability to obtain sufficient appropriate audit evidence: When the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements are free from material misstatement.
ii) Types of opinion that may be issued under each circumstance:
- Financial statements materially misstated:
- Qualified opinion: Issued when the misstatement is material but not pervasive, meaning it is limited to specific areas of the financial statements.
- Adverse opinion: Issued when the misstatement is both material and pervasive, meaning it affects the overall fairness of the financial statements.
- Inability to obtain sufficient appropriate audit evidence:
- Qualified opinion: Issued when the auditor is unable to obtain sufficient evidence, but the issue is material and not pervasive.
- Disclaimer of opinion: Issued when the lack of evidence is both material and pervasive, preventing the auditor from forming an opinion on the financial statements.
- Tags: Audit evidence, Audit opinion, Financial Misstatements, ISA 705
- Level: Level 2
- Topic: Completion Procedures and Reporting
- Series: JULY 2023
- Uploader: Dotse