CA. Saubhik Sarkar
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 Shall
be in writing
 Written
report encompasses reports
issued:
◦ in hard copy format AND
◦ using electronic medium
2
Main Report –
Auditor’s Opinion
• SA 700, Forming an
Opinion
& Reporting on FS
• SA 705,
Modifications to the
Opinion in
the Independent
Auditor’s Report
• SA 706, Emphasis of
Matter &
Other Matter
Paragraphs in
Independent
Auditor’s Reports
Comparative
Information
• SA 710,
Comparatives
Other
Information
• SA 720, Other
Information in
Documents
Containing Auditor’s
Report
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Unmodified
(SA 700)
Modified
(SA 705)
• Auditor concludes FS are
prepared in all material
respects as per
applicable FRF
• Based on audit evidence,
auditor concludes FS as a
whole are not free from
material misstatements
OR
• Auditor unable to obtain
SAAE that FS as a whole
are free from material
misstatements
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Form an
opinion
• on FS based on
evaluation of
conclusions drawn
from audit evidence
Express clearly
that opinion
• through a written
report that also
describes the basis
for opinion
5
Whether Financial Statements (FS) are prepared in all
material respects in accordance with applicable Financial
Reporting Framework (FRF)
To form this opinion, auditor needs to conclude whether
he/ she has obtained reasonable assurance that FS as a
whole are free of material misstatements (fraud/ error)
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If FS adequately
disclose significant
accntng policies
Terminology
used in FS is
appropriate
FS adequately
describe or refer
applicable FRF
AUDIT
OPINION
Consistency &
appropriateness of
accntg policies with FRF
Disclosures are adequate
to enable users to understand
effect of material transactions
or events on info in FS
FS prepared in all
material respects in
accordance with FRF
Conclusion
on
reasonable
assurance
SAAE has
been
obtained
(SA 330)
Reasonableness of
accntg estimates
Relevance, reliability,
comparability &
understandability of
info in FS
Qualitative aspects of
accntg practices & possible
bias in mgt judgment
Materiality of uncorrected
misstatements individually
or aggregate (SA 450)
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Fair Presentation FRF – If FS do not
achieve fair presentation:


Discuss matter with mgt
Determine need to modify opinion depending upon
◦ Requirements of FRF &
◦ How matter is resolved
Compliance FRF


No need to evaluate if FS achieve fair
presentation
If in rare circumstances, auditor concludes FS are
misleading, determine whether & how to
communicate in audit report after:
◦ Discuss with mgt
◦ How matter is resolved
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
Law/ Regulation/ Court Order may permit
departure from the accepted Financial
Reporting Framework
◦ Deemed to be compliance with FRF (modified to
that extent)
◦ Does not require qualified audit opinion
◦ If impact is material, describe the matter in
Emphasis of Matter paragraph

Example:
◦ RBI directive on treatment of gratuity liability in
Banks– charge staggered over five years - departure
from AS 15
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Title
Addressee
Management’s Responsibility
Auditor’s Responsibility
Auditor’s Opinion
Other Reporting Responsibilities
Auditor’s signature
Date of signature
Place of signature
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
Title – “Independent Auditor’s Report”
◦ Auditor’s assertion as to compliance with applicable
ethical requirements

Addressee
◦ Usually addressed to those for whom it is prepared
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
Preparation of financial statements
that give true and fair view
◦ Design, implementation and maintenance
of internal controls

Specific agreement of management on
its responsibilities needed
◦ Through engagement letter (SA 210)
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


Expression of opinion on financial statements
Compliance with Standards on Auditing
Description of audit procedures
◦ Audit evidence about amounts & disclosures in
financial statements
◦ Assessment of risk of material misstatements
◦ Consideration of internal controls over financial
reporting
◦ Evaluation of
 appropriateness of accounting policies
 Reasonableness of management’s accounting
estimates
 Overall presentation of financial statements
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
Date informs the users that auditor has
considered subsequent events upto that date
◦ Makes auditor responsible for consideration of
events/ transactions upto that date

Financial statements
responsibility
are
management’s
◦ Do not sign on a date before financial statements
are approved by management (Board of Directors)
◦ Can be signed on the same date
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
Evaluate at engagement acceptance stage
itself whether:
◦ Users might misunderstand the assurance from
audit; and if so
◦ Providing additional explanation in auditor’s
report can mitigate such understanding
 If not, don’t accept such engagement
 If law requires auditor to accept the
engagement, do not include reference to SAs in
auditor’s report
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

Consider each framework separately
If financial statements comply with each of
the frameworks
◦ May issue two separate opinions

If financial statements comply only with one
of the frameworks
◦ Issue unmodified opinion for the framework which
is complied with
◦ Issue modified opinion for the framework which is
not complied with
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
Wherever possible bring the same in line with
requirements of SA 700 to the extent
possible
◦ Brings in consistency in reporting
◦ Enhances credibility

Basic elements of auditor’s report as given in
SA 700 must be present
◦ Order of appearance/ layout would not matter

If auditor not free to bring in those elements
◦ Cannot state that
accordance with SAs
audit
was
carried
out
in
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Presented but not
required by FRF
• Evaluate whether SI clearly
differentiated from audited
FS
Integral part of FS due
to its nature & how it is
presented
• Auditor to cover it in his
audit opinion
• If not, ask management to
change presentation of
unaudited SI
• If mgt refuses, explain in
Auditor’s Report that SI is
unaudited
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
Four aspects of FRF:
◦
◦
◦
◦

Recognition
Measurement
Classification and presentation
Disclosure
Misstatement - difference between how each of
these aspects is reported in FS vis a vis how it
should be reported as per applicable FRF
◦ Appropriateness of selected accounting policies
◦ Application of selected accounting policies
◦ Appropriateness/ adequacy of disclosures

So, material misstatements not restricted only to
recognition & measurement
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Auditor concludes FS as a whole are
not free of material misstatements
Auditor obtains
audit evidence
Appropriateness
of selected
accntg policies
OR
Appropriateness
or adequacy
of disclosures
in FS
Application
of selected
accntg policies
Auditor unable to
obtain SAAE
Limitations
imposed
by Mgt
Circumstances
beyond entity’s
control
Circumstances relating
to nature & timing
of auditor’s work
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Qualified
Adverse
Disclaimer
Affecting Factors
Nature of matter giving
rise to modification
Whether FS are
materially misstated
AND
Auditor’s judgment re
pervasiveness of
effects/ possible
effects of matter on FS
Inability to obtain SAAE
leading to possible material
misstatement in FS
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Nature of Matter Giving
Rise to the
Modification
Auditor’s Judgment about the
Pervasiveness of the Effects or
Possible Effects on the FS
Material but Not
Pervasive
Material and
Pervasive
FS are materially
misstated
Qualified
opinion
Adverse
opinion
Inability to obtain
SAAE
Qualified
opinion
Disclaimer of
opinion
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Describes effect on FS
Misstatements
Possible effects on
FS of misstatements
Undetected due to inability to obtain SAAE
Auditor’s Judgment
Not confined to
specific elements,
accounts or
items of FS
If confined, represents
or could represent
substantial portion
of FS
In relation to disclosures,
are fundamental to
user’s understanding
of FS
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Basis of Modification Para:





In addition to other elements as per SA 700(R)
Amend Auditor’s responsibility statement
Description
of
matter
giving
rise
to
modification
Placed immediately before Opinion Para
Use heading “Basis for ……….. Opinion”
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
Use professional judgment
◦ Within the framework of relevant accounting & auditing
standards
◦ In keeping with competencies expected from auditor’s
training, knowledge & experience
◦ Follow the processes laid out in SQC 1 & SA 220



To be exercised through out the audit
To be documented appropriately
Professional judgment cannot support decisions
not
otherwise
supported
by
facts
&
circumstances of engagements or sufficient
appropriate audit evidence
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Auditor accepts
engagement
Determine possibility
of performing
alternative procedures
to obtain SAAE
If auditor unable
to obtain SAAE
Qualify ?
Mgt imposes
scope limitation
Communicate
to TCWG
Disclaimer ?
Likely to result in
qualification or disclaimer
Mgt
refuses
Request Mgt to
remove limitation
Resign where practicable
& not prohibited by law
If not possible to resign,
disclaim the opinion
Communicate
with TCWG
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
Audit
report
not
to
include
unmodified opinion wrt same FRF on
a single FS or one or more specific
elements, accounts or items of FS
◦ Otherwise audit opinion is contradicted
on FS as a whole
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If modified opinion is expected,
communicate with TCWG:


Circumstances that led to expected modification
Proposed wording of modification
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Some Illustrations
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Basis of Qualified Opinion
The Company’s inventories are carried at cost in the Balance Sheet at Rs.
YYY. Management has not stated the inventories at the lower of cost
and net realisable value but has stated them solely at cost, which
constitutes a departure from Accounting Standards referred to in section
211(3C) of the Companies Act 1956.
The Company’s records indicate that had the management stated the
inventories at the lower of cost and NRV, an amount of Rs. BBB would
have been required to write down the inventories to NRV. Accordingly
the cost of sales would have been increased by Rs. BBB, and net profit,
income tax and shareholders’ funds would have been reduced by Rs.
BBB, Rs. CCC and Rs. DDD, respectively.
Qualified Opinion
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 Basis for Qualified Opinion paragraph, the financial statements give a
true and fair view……………………..
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Basis for Adverse Opinion
As explained in Note X, the Company has not consolidated the
financial statements of a subsidiary company, ABC Ltd., it had
acquired during 20XX because it has not yet been able to ascertain
the fair values of certain of the subsidiary’s material assets and
liabilities at the acquisition date. The acquisition is therefore
accounted as an investment.
Under the accounting principles generally accepted in India, the
subsidiary should have been consolidated because it is controlled by
the Company. Had ABC Ltd been consolidated, many elements in
the accompanying financial statements would have been materially
affected. The effects on the financial statements of the failure to
consolidate have not been determined.
Adverse opinion
In our opinion, because of the significance of the matter discussed in
the Basis for Adverse Opinion paragraph, the consolidated financial
statements do not give a true & fair view………….
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Basis for Qualified Opinion
ABC Ltd.’s investment in XYZ Co, a foreign associate acquired
during the year and accounted for by the equity method is
carried at Rs. XXX in the balance sheet as at 31st March 20XX
and ABC’s share of income for the year then ended. We were
unable to obtain sufficient appropriate audit evidence about
the carrying amount of the Company’s investment in XYZ Co
as at March 31, 20XX and the Companty’ share of XYZ
Company’s net income for the year because we were denied
access to financial information, management and auditors of
XYZ Company. Consequently, we were unable to determine
whether any adjustments to these amounts were necessary.
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Basis for Disclaimer of Opinion
The Company’s investment in its joint venture XYZ Co is carried at
Rs. XXX in the Company’s balance sheet representing over 90% of
the Company’s net assets as at 31st March 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 Company’s
proportional share of XYZ Company’s income & expenditure for the
year, and the elements making up the Cash Flow Statement.
Disclaimer of Opinion
Because of the significance of the matter described in the Basis for
Disclaimer of Opinion paragraph, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an audit
opinion. Accordingly, we do not express an opinion on the financial
statements.
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35

Para included in Audit report
Matter appropriately presented/ disclosed in FS as
required by applicable FRF
Matter in the auditor’s judgment is of importance
Matter is fundamental to users’ understanding of
FS
 EoM
is not part of audit opinion
EoM does not imply audit opinion is modified in
respect of that matter
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Matters fundamental to
understanding of FS
Widespread use of EoM
reduces effectiveness of
auditor’s communication of
such matters
• Auditor should have obtained SAAE
that matter is not materially
misstated in FS
• More info in EoM than FS may imply
matter not adequately presented
disclosed in FS
• EMP to refer only to info presented/
disclosed in FS
• Thus, EoM limited to matter
presented/ disclosed in FS
EoM not a substitute for
Modified Opinion
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


Placement - immediately after Opinion para
Use heading “Emphasis of Matter” or other
appropriate heading
EMP to contain clear reference to:
◦ matter being emphasised
◦ where relevant, disclosure that fully describe the
matter can be found in FS

Indicate that audit opinion is not modified in
respect of matter emphasised
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Emphasis of Matter
Without qualifying our opinion, we draw attention
to Note X to the financial statements, regarding
recognition of deferred tax assets.
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Para included in AR
 Refers to matter other than those presented/
disclosed in FS
 In auditor’s judgment
 Is relevant to users’ understanding of audit,
auditor’s responsibilities or auditor’s report

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 Include
if not prohibited by L&R
 Use heading “Other Matter”/ other
appropriate heading
 Placement:
◦ immediately after Opinion para & EoM
or
◦ elsewhere if OMP is relevant to Other
Reporting Responsibilities section
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Clearly reflect that such other matter is
not required to be presented and
disclosed in FS.
 Not to include

◦ Info prohibited from inclusion by L&R, other
standards,
eg.,
Ethics
relating
to
confidentiality of information.
◦ Info required to be provided by mgt

Placement
◦ Depends upon
communicated
nature
of
info
to
be
42
Communicate:
 Expectation to include EMP/
OMP
 Proposed wordings of paras
43
Documents containing audited FS :
◦ Annual reports (or similar documents)
◦ Issued to owners (similar stakeholders)
◦ Containing audited FS and Audit Report

SA 720 may be applied (adapted as necessary)
to other documents containing audited FS.
44
Financial & non financial information
Included by law/ regulation/ custom
In documents containing audited FS and Audit
Report
45

Other information that contradicts information
contained in audited FS
◦ May raise doubt about:
 audit conclusions drawn from audit evidence obtained
earlier
 Basis of audit opinion on FS
What is “Misstatement of Fact”
• Other information that is:
– Unrelated to audited FS and
– Incorrectly stated/ presented
• May undermine credibility of FS
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Reading Other Information


to identify material inconsistencies vis a
vis audited FS
Make
appropriate
arrangements
with
management/ TCWG to get “other
information’ before date of Audit Report
◦ Helps timely resolution of possible material
inconsistency/ misstatement of facts
◦ Agreement with management as to time of
availability of “other information”
◦ If not possible before, then get “other information”,
as soon as practicable.
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Material Inconsistency Identified
Y
Audited FS
needs
revision?
N
Other info
needs revision
Y
Mgt
refuses?
Y
Issue modified
opinion
Can seek
legal advice
N
Prior to Date of
Audit Report ?
Mgt
refuses ?
Y
• communicate to TCWG
AND
• emphasis of matter para
OR
• withdraw
if
legally
permitted
Y
Audited FS
needs
revision?
Mgt
refuses ?
Follow
SA 560
Y
N
Carry out necessary
procedures
• notify TCWG
• take any other action,
including seeking legal
advice
48
Auditor BECOMES AWARE of Material
Misstatement of Facts
Discuss with Management
May not be possible to evaluate validity of:
•Some disclosures in other info
•Management’s responses
Valid difference of opinion may exist
Auditor considers
APPARENT material
misstatement of fact
exists
request mgt to consult
qualified
3rd party
Consider advice
received
Auditor concludes
material
misstatement of
fact exists
• Notify TCWG
• Take further appropriate action
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





What the auditor has done to ensure
independence
Specific risks and focal points of attention in
audit & reasons therefor
Audit steps to address those points
Materiality criteria used
Entities/ items specifically excluded from
audit/ subjected to limited direct work
Steps taken to ensure high quality work if he
uses work of other auditors
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
Specific reporting on Going Concern
◦ A conclusion regarding the appropriateness of
management’s use of the going concern
assumption; and
◦ A statement regarding whether, based on the audit
work performed, material uncertainties related to
events or conditions that may cast significant doubt
on the entity’s ability to continue as a going
concern have been identified.
◦ This would be supported by a description of the
management’s responsibilities with respect to
going concern.
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Auditor Commentary
 The section on Auditor Commentary would contain those
audit matters that in the auditor’ judgment, are likely to be
most important to user’s understanding of the financial
statements such as:
 Areas of significant management judgment (e.g., in relation
to the entity’s accounting practices, including accounting
policies, accounting estimates, and financial statement
disclosures).
 Significant or unusual transactions (e.g., significant related
party transactions or restatements).
 Matters of audit significance, including areas of significant
auditor judgment in conducting the audit, for example:
◦ Difficult or contentious matters noted during the audit, or other audit
matters that would typically be discussed with an engagement quality
control reviewer or Those Charged with Governance ; and
◦ Other issues of significance related to the audit scope or strategy.

Specific reporting on SA 720
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THANK YOU
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