CHAPTER 11

AUDIT REPORT (SA 700, 701, 705, 706)

Objective of the Auditor as per SA 700
The objectives of the auditor as per SA 700 (Revised), “Forming An Opinion And Reporting On Financial Statements”
are:
(a) To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit
evidence obtained; and
(b) To express clearly that opinion through a written report.
AUDITOR’S REPORT
The auditor’s report shall be in writing. A written report encompasses reports issued in hard copy and those using an
electronic medium.
This SA-700 requires the use of specific headings, which are intended to assist in making auditor’s reports that refer
to audits that have been conducted in accordance with SAs more recognizable.
Auditor’s Report for Audits Conducted in Accordance with Standards on Auditing
Basic Elements of an Audit Report are given below:
1 Title: The auditor’s report shall have a title that clearly indicates that it is the report of an independent auditor.
For example, “Independent Auditor’s Report,” distinguishes the independent auditor’s report from reports issued by
others.
2. Addressee: The auditor’s report shall be addressed, as appropriate, based on the circumstances of the
engagement. Law, regulation or the terms of the engagement may specify to whom the auditor’s report is to be
addressed.
The auditor’s report is normally addressed to those for whom the report is prepared, often either to the shareholders
or to those charged with governance of the entity whose financial statements are being audited.
3. Auditor’s Opinion: The first section of the auditor’s report shall include the auditor’s opinion, and shall have the
heading “Opinion.”
The Opinion section of the auditor’s report shall also:
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting policies; and
(e) Specify the date of, or period covered by, each financial statement comprising the financial statements.
4. Basis for Opinion:
The auditor’s report shall include a section, directly following the Opinion section, with the heading “Basis for Opinion”,
that:
(a) States that the audit was conducted in accordance with Standards on Auditing;
(b) Refers to the section of the auditor’s report that describes the auditor’s responsibilities under the SAs;

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(c) Includes a statement that the auditor is independent of the entity in accordance with the relevant ethical
requirements relating to the audit and has fulfilled the auditor’s other ethical responsibilities in accordance with these
requirements.
(d) States whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to
provide a basis for the auditor’s opinion.
5. Going Concern: Where applicable, the auditor shall report in accordance with SA 570 (Revised).
6. Key Audit Matters: For audits of complete sets of general purpose financial statements of listed entities, the auditor
shall communicate key audit matters in the auditor’s report in accordance with SA 701.
When the auditor is otherwise required by law or regulation or decides to communicate key audit matters in the
auditor’s report, the auditor shall do so in accordance with SA 701.
Law or regulation may require communication of key audit matters for audits of entities other than listed entities.
7. Responsibilities for the Financial Statements: The auditor’s report shall include a section with a heading
“Responsibilities of Management for the Financial Statements.”
This section of the auditor’s report shall describe management’s responsibility for:
(a) Preparing the financial statements in accordance with the applicable financial reporting framework, and for such
internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error;[because of the possible effects of fraud on other
aspects of the audit, materiality does not apply to management’s acknowledgement regarding its responsibility for the
design, implementation, and maintenance of internal control (or for establishing and maintaining effective internal
control over financial reporting) to prevent and detect fraud.] and
(b) Assessing the entity’s ability to continue as a going concern and whether the use of the going concern basis of
accounting is appropriate as well as disclosing, if applicable, matters relating to going concern. The explanation of
management’s responsibility for this assessment shall include a description of when the use of the going concern
basis of accounting is appropriate.
8. Auditor’s Responsibilities for the Audit of the Financial Statements:
This section of the auditor’s report shall:
(a) State that the objectives of the auditor are to:
(i) Obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error; and
(ii) Issue an auditor’s report that includes the auditor’s opinion.
(b) State that reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with SAs will always detect a material misstatement when it exists; and
(c) State that misstatements can arise from fraud or error, and either:
(i) Describe that they are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements; or
(ii) Provide a definition or description of materiality in accordance with the applicable financial reporting framework.
The Auditor’s Responsibilities for the Audit of the Financial Statements section of the auditor’s report shall further:
(a) State that, as part of an audit in accordance with SAs, the auditor exercises professional judgment and maintains
professional skepticism throughout the audit; and
(b) Describe an audit by stating that the auditor’s responsibilities are:
1. To identify and assess the risks of material misstatement of the financial statements.
2. To design and perform audit procedures in response to those risks.
3. To obtain sufficient and appropriate audit evidence.

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9. Location of the description of the auditor’s responsibilities for the audit of the financial statements: The description
of the auditor’s responsibilities for the audit of the financial statements shall be included:
(a) Within the body of the auditor’s report;
(b) Within an appendix to the auditor’s report, in which case the auditor’s report shall include a reference to the
location of the appendix; or
(c) By a specific reference within the auditor’s report to the location of such a description on a website of an
appropriate authority, where law, regulation or national auditing standards expressly permit the auditor to do so.
10. Other Reporting Responsibilities: If the auditor addresses other reporting responsibilities in the auditor’s report on
the financial statements that are in addition to the auditor’s responsibilities under the SAs, these other reporting
responsibilities shall be addressed in a separate section in the auditor’s report with a heading titled-
“Report on Other Legal and Regulatory Requirements” or otherwise as appropriate to the content of the section,
unless these other reporting responsibilities address the same topics as those presented under the reporting
responsibilities required by the SAs in which case the other reporting responsibilities may be presented in the same
section as the related report elements required by the SAs.
If other reporting responsibilities are presented in the same section as the related report elements required by the
SAs, the auditor’s report shall clearly differentiate the other reporting responsibilities from the reporting that is required
by the SAs.
If the auditor’s report contains a separate section that addresses other reporting responsibilities, the requirements
stated above shall be included under a section with a heading “Report on the Audit of the Financial Statements.” The
“Report on Other Legal and Regulatory Requirements” shall follow the “Report on the Audit of the Financial
Statements.”
11. Signature of the Auditor: The auditor’s report shall be signed. The report is signed by the auditor (i.e. the
engagement partner) in his personal name. Where the firm is appointed as the auditor, the report is signed in the
personal name of the auditor and in the name of the audit fi rm.
The partner/proprietor signing the audit report also needs to mention the membership number assigned by the
Institute of Chartered Accountants of India. They also include the registration number of the firm, wherever applicable,
as allotted by ICAI, in the audit reports signed by them.
12. Auditor’s Address: The auditor’s report shall name specific location, which is ordinarily the city where the audit
report is signed.
13 Date of the Auditor’s Report: The auditor’s report shall be dated no earlier than the date on which the auditor has
obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements,
including evidence that:
(a) All the statements that comprise the financial statements, including the related notes, have been prepared; and
(b) Those with the recognized authority have asserted that they have taken responsibility for those financial
statements.
The date of the auditor’s report informs the user of the auditor’s report that the auditor has considered the effect of
events and transactions of which the auditor became aware and that occurred up to that date. The auditor’s
responsibility for events and transactions after the date of the auditor’s report is addressed in SA 560.
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial Statements1
Opinion
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the
balance sheet as at 31st March 20XX, and the statement of Profit and Loss, (statement of changes in equity)2 and
statement of cash flows for the year then ended, and notes to the financial statements, including a summary of

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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)]3.
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid
standalone financial statements give the information required by the Act 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 31, 20XX, and profit/loss, (changes in equity)4 and its cash flows for the year ended on that date.
Basis for Opinion
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 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 the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
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.
Management’s Responsibility for the Standalone Financial Statements
The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013
(“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the
financial position, financial performance, (changes in equity)5 and cash flows of the Company in accordance with6 the
accounting principles generally accepted in India, including the accounting Standards specified under section 133 of
the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the
provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other
irregularities; selection and application of appropriate implementation and maintenance of accounting policies; making
judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate
internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the
accounting records, relevant to the preparation and presentation of the financial statement that give a true and fair
view and are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Other Matter
We did not audit the fi nancial statements/ information of ………………. (number) branches included in the stand
alone financial statements of the Company whose financial statements/financial information reflect total assets of Rs.
……………….. as at 31st March 20XX and the total revenue of ` ………………. for the year ended on that date, as
considered in the standalone financial statements/information of these branches have been audited by the branch
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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 branches, is based solely on the report of such branch auditors.
Our opinion is not modified in respect of these matters.
Report on Other Legal and Regulatory Requirements
As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”), issued by the Central Government of
India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the Annexure a statement on
the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief
were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears
from our examination of those books [and proper returns adequate for the purposes of our audit have been
received from the branches not visited by us.7]
(c) [The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by
branch auditors have been sent to us and have been properly dealt with by us in preparing this report8.]
(d) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are
in agreement with the books of account [and with the returns received from the branches not visited by us9].
(e) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified
under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.
(f) On the basis of the written representations received from the directors as on 31st March, 20XX taken on record by
the Board of Directors, none of the directors is disqualified as on 31st March, 20XX from being appointed as a
director in terms of Section 164 (2) of the Act.
(g) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the
operating effectiveness of such controls, refer to our separate Report in “Annexure A”.
(h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the
Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to
the explanations given to us:
(i) The Company has disclosed the impact of pending litigations on its financial position in its financial statements –
Refer Note XX to the financial statements; [or the Company does not have any pending litigations which would impact
its financial position10]
(ii) The Company has made provision, as required under the applicable law or accounting standards, for material
foreseeable losses, if any, on long-term contracts including derivative contracts – Refer Note XX to the financial
statements; [or the Company did not have any long-term contracts including derivative contracts for which there were
any material foreseeable losses.11]
(iii) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and
Protection Fund by the Company {or, following are the instances of delay in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by the Company or there were no amounts which were
required to be transferred to the Investor Education and Protection Fund by the Company12}.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)

Signature
(Name of the Member Signing the Audit Report)
(Designation13)
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 (Membership No. XXXXX)

Place of Signature:
Date:
MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT
Circumstances When a Modification to the Auditor’s Opinion Is Required
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
(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.

Qualified Opinion
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.
Adverse Opinion
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 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.
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.
Definition of 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.

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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.
Nature of Matter Giving Rise to the Auditor’s Judgment about the Pervasiveness of the Effects or Possible
Modification Effects on the Financial Statements
Material but Not Pervasive Material and Pervasive
Financial statements are materially Qualified opinion Adverse opinion
misstated
Inability to obtain sufficient Qualified opinion Disclaimer of opinion
appropriate audit evidence

EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE

INDEPENDENT AUDITOR’S REPORT.
Objective of the Auditor as per SA 706
As per SA 706 (Revised) on “Emphasis of Matter Paragraphs and Other Matter Paragraphs In The Independent
Auditor’s Report”, the objective of the auditor, having formed an opinion on the financial statements, is to draw users’
attention, when in the auditor’s judgment it is necessary to do so, by way of clear additional communication in the
auditor’s report, to:
(a) A matter, although appropriately presented or disclosed in the financial statements, that is of such importance that
it is fundamental to users’ understanding of the financial statements; or
(b) As appropriate, any other matter that is relevant to users’ understanding of the audit, the auditor’s responsibilities
or the auditor’s report.
Definitions
Emphasis of Matter paragraph – A paragraph included in the auditor’s report that refers to a matter appropriately
presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is
fundamental to users’ understanding of the financial statements.
Other Matter paragraph – A paragraph included in the auditor’s report that refers to a matter other than those
presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of
the audit, the auditor’s responsibilities or the auditor’s report.
Emphasis of Matter Paragraphs in the Auditor’s Report
If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the financial
statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the
financial statements, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report provided:
(a) The auditor would not be required to modify the opinion in accordance with SA 705 (Revised) as a result of the
matter; and
(b) When SA 701 applies, the matter has not been determined to be a key audit matter to be communicated in the
auditor’s report.
Separate section for Emphasis of Matter paragraph
When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:
(a) Include the paragraph within a separate section of the auditor’s report with an appropriate heading that includes
the term “Emphasis of Matter”;

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(b) Include in the paragraph a clear reference to the matter being emphasized and to where relevant disclosures that
fully describe the matter can be found in the financial statements. The paragraph shall refer only to information
presented or disclosed in the financial statements; and
(c) Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
Other Matter Paragraphs in the Auditor’s Report
If the auditor considers it necessary to communicate a matter other than those that are presented or disclosed in the
financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s
responsibilities or the auditor’s report, the auditor shall include an Other Matter paragraph in the auditor’s report,
provided:
(a) This is not prohibited by law or regulation; and
(b) When SA 701 applies, the matter has not been determined to be a key audit matter to be communicated in the
auditor’s report.
Separate section for Other Matter paragraph
When the auditor includes an Other Matter paragraph in the auditor’s report, the auditor shall include the paragraph
within a separate section with the heading “Other Matter,” or other appropriate heading.
COMMUNICATING KEY AUDIT MATTERS IN THE INDEPENDENT AUDITOR’S REPORT
Definition of Key Audit Matters : Those matters that, in the auditor’s professional judgment, were of most significance
in the audit of the financial statements of the current period. Key audit matters are selected from matters
communicated with those charged with governance.
Purpose of Communicating Key Audit Matters
As per SA 701, “Communicating Key Audit Matters in the Auditor’s Report”, the purpose of communicating key audit
matters is to enhance the communicative value of the auditor’s report by providing greater transparency about the
audit that was performed. Communicating key audit matters provides additional information to intended users of the
financial statements to assist them in understanding those matters that, in the auditor’s professional judgment, were of
most significance in the audit of the financial statements of the current period. Communicating key audit matters may
also assist intended users in understanding the entity and areas of significant management judgment in the audited
financial statements.
Objectives of the Auditor regarding Key Audit Matters
As per SA 701, “Communicating Key Audit Matters in The Independent Auditor’s Report”, the objectives of the auditor
are to determine key audit matters and, having formed an opinion on the financial statements, communicate those
matters by describing them in the auditor’s report.
Determining Key Audit Matters
The auditor shall determine, from the matters communicated with those charged with governance, those matters that
required significant auditor attention in performing the audit.
In making this determination, the auditor shall take into account the following:
(a) Areas of higher assessed risk of material misstatement, or significant risks identified in accordance with SA 315.
(b) Significant auditor judgments relating to areas in the financial statements that involved significant management
judgment, including accounting estimates that have been identified as having high estimation uncertainty.
(c) The effect on the audit of significant events or transactions that occurred during the period.
The auditor shall determine which of the matters determined in accordance with above stated para were of most
significance in the audit of the financial statements of the current period and therefore are the key audit matters.

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Communicating Key Audit Matters
The auditor shall describe each key audit matter, using an appropriate subheading, in a separate section of the
auditor’s report under the heading “Key Audit Matters”. The introductory language in this section of the auditor’s report
shall state that:
(a) Key audit matters are those matters that, in the auditor’s professional judgment, were of most significance in the
audit of the financial statements [of the current period]; and
(b) These matters were addressed in the context of the audit of the financial statements as a whole, and in forming
the auditor’s opinion thereon, and the auditor does not provide a separate opinion on these matters.
Communicating Key Audit Matters- not a substitute for disclosure in the Financial Statements etc.
Communicating key audit matters in the auditor’s report is in the context of the auditor having formed an opinion on
the financial statements as a whole. Communicating key audit matters in the auditor’s report is not:
(a) A substitute for disclosures in the financial statements that the applicable financial reporting framework requires
management to make, or that are otherwise necessary to achieve fair presentation;
(b) A substitute for the auditor expressing a modified opinion when required by the circumstances of a specific audit
engagement in accordance with SA 705 (Revised);
(c) A substitute for reporting in accordance with SA 570 when a material uncertainty exists relating to events or
conditions that may cast significant doubt on an entity’s ability to continue as a going concern; or
(d) A separate opinion on individual matters.
STANDARD ON AUDITING-710, “COMPARATIVE INFORMATION-CORRESPONDING
FIGURES AND COMPARATIVE FINANCIAL STATEMENTS”
The Nature of the Comparative Information
The nature of the comparative information that is presented in an entity’s financial statements depends on the
requirements of the applicable financial reporting framework. There are two different broad approaches to the
auditor’s reporting responsibilities in respect of such comparative information: corresponding figures and comparative
financial statements. The approach to be adopted is often specified by law or regulation but may also be specifi ed in
the terms of engagement.
The essential audit reporting differences between the approaches are:
(a) For corresponding figures, the auditor’s opinion on the financial statements refers to the current period only;
whereas
(b) For comparative financial statements, the auditor’s opinion refers to each period for which financial statements are
presented.
Definition of Comparative information – The amounts and disclosures included in the financial statements in respect
of one or more prior periods in accordance with the applicable financial reporting framework.
Audit Procedures regarding comparative information
The auditor shall determine whether the financial statements include the comparative information required by the
applicable financial reporting framework and whether such information is appropriately classified. For this purpose, the
auditor shall evaluate whether:
(a) The comparative information agrees with the amounts and other disclosures presented in the prior period; and
(b) The accounting policies reflected in the comparative information are consistent with those applied in the current
period or, if there have been changes in accounting policies, whether those changes have been properly accounted
for and adequately presented and disclosed.

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Audit Reporting regarding Corresponding Figures
Definition of Corresponding figures – Comparative information where amounts and other disclosures for the prior
period are included as an integral part of the current period financial statements, and are intended to be read only in
relation to the amounts and other disclosures relating to the current period (referred to as “current period figures”).
The level of detail presented in the corresponding amounts and disclosures is dictated primarily by its relevance to the
current period figures.
When corresponding figures are presented, the auditor’s opinion shall not refer to the
corresponding fi gures except in the following circumstances.
1. If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a disclaimer of opinion,
or an adverse opinion and the matter which gave rise to the modification is unresolved, the auditor shall modify the
auditor’s opinion on the current period’s financial statements. In the Basis for Modification paragraph in the auditor’s
report, the auditor shall either:
(a) Refer to both the current period’s figures and the corresponding figures in the description of the matter giving rise
to the modification when the effects or possible effects of the matter on the current period’s figures are material; or
(b) In other cases, explain that the audit opinion has been modified because of the effects or possible effects of the
unresolved matter on the comparability of the current period’s figures and the corresponding figures.
2. If the auditor obtains audit evidence that a material misstatement exists in the prior period financial statements on
which an unmodified opinion has been previously issued, the auditor shall verify whether the misstatement has been
dealt with as required under the applicable financial reporting framework and, if that is not the case, the auditor shall
express a qualified opinion or an adverse opinion in the auditor’s report on the current period financial statements, ed.
3. Prior Period Financial Statements Not Audited - If the prior period financial statements were not audited, the auditor
shall state in an Other Matter paragraph in the auditor’s report that the corresponding figures are unaudited. Such a
statement does not, however, relieve the auditor of the requirement to obtain sufficient appropriate audit evidence that
the opening balances do not contain misstatements that materially affect the current period’s financial statements.
Comparative Financial Statements
Definition: Comparative information where amounts and other disclosures for the prior period are included for
comparison with the financial statements of the current period but, if audited, are referred to in the auditor’s opinion.
The level of information included in those comparative financial statements is comparable with that of the financial
statements of the current period.
Auditor’s opinion- to refer each period: When comparative financial statements are presented, the auditor’s opinion
shall refer to each period for which financial statements are presented and on which an audit opinion is expressed.
When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s
opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor
shall disclose the substantive reasons for the different opinion in an Other Matter paragraph in accordance with SA
706.
Question.1
The auditor shall express a qualified opinion when the auditor concludes that the financial statements are prepared, in
all material respects, in accordance with the applicable financial reporting framework.
Answer
Incorrect: The auditor shall express an unmodified opinion when the auditor concludes that the financial statements
are prepared, in all material respects, in accordance with the applicable financial reporting framework.
Question.2
There is no need of addressee in the Auditor’s report.

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Answer
Incorrect. The auditor’s report shall be addressed, as appropriate, based on the circumstances of the engagement.
Law, regulation or the terms of the engagement may specify to whom the auditor’s report is to be addressed. The
auditor’s report is normally addressed to those for whom the report is prepared, often either to the shareholders or to
those charged with governance of the entity whose financial statements are being audited.
Question.3
The auditor shall modify the opinion in the auditor’s report only when the auditor concludes that, based on the audit
evidence obtained, the financial statements as a whole are not free from material misstatement.
Answer
Incorrect. 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
(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.
Question.4
The auditor shall express a disclaimer of 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.
Answer
Correct. 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.
Question.5
Communicating key audit matter in the auditor’s report constitutes a substitute for disclosure in the financial
statements.
Answer
Incorrect. Communicating key audit matters in the auditor’s report is in the context of the auditor having formed an
opinion on the financial statements as a whole. Communicating key audit matters in the auditor’s report is not a
substitute for disclosures in the financial statements that the applicable financial reporting framework requires
management to make, or that are otherwise necessary to achieve fair presentation.
Question.6
“The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework.” Explain.
Question.7
“The auditor shall evaluate whether the financial statements are prepared, in all material respects, in accordance with
the requirements of the applicable financial reporting framework. This evaluation shall include consideration of the
qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s
judgments.” Discuss stating clearly qualitative aspects of the entity’s accounting practices.
Question.8
Discuss the factors affecting the decision of the auditor regarding which type of modified opinion is appropriate.
Question.9
Discuss the objective of the auditor as per Standard on Auditing (SA) 705 “Modifi cations to The Opinion in The
Independent Auditor’s Report”.

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