Types of Auditor's Opinions

Auditor's Opinions and Modifications

Types of Auditor's Opinions (ASA 700, 705, 706 / ISA 700, 705, 706)

• Unmodified Opinion: Standard report issued when the auditor is satisfied that the financial report is fairly presented.
• Modified Opinions: Issued when modifications are necessary:
  • Qualified Opinion
  • Disclaimer of Opinion
  • Adverse Opinion

Emphasis of Matter Paragraph

• Used to highlight matters appropriately presented in the financial report that are fundamental to users' understanding.

Other Matter Paragraph

• Used to highlight matters not presented in the financial report but are relevant to users' understanding of the audit, auditor's responsibilities, or the auditor's report.

Unmodified Auditor's Report

• Issued when the auditor concludes they have obtained reasonable assurance that the financial report is free from material misstatement.
• Requires that sufficient appropriate audit evidence has been obtained according to \text{ASA 330/ISA 330}, any uncorrected misstatements are immaterial per \text{ASA 450/ISA 450}, and that the financial report follows the applicable financial reporting framework based on \text{ASA 700/ISA 700}.

Modifications Affecting the Auditor’s Opinion

• Modifications must be material to the financial report.
• Serious modifications (adverse opinions and disclaimers) must be pervasive.
• Pervasive Effects:
  • Not confined to specific elements.
  • If confined, represent a substantial portion of the financial report.
  • Fundamental to users' understanding regarding disclosures (\text{ASA 705.5/ISA 705.5}$).

Qualified Opinion

• Expressed when misstatements are material but not pervasive, or when the auditor cannot obtain sufficient evidence but believes the possible effects could be material but not pervasive (\text{ASA 705.07/ISA 705.07}
• Indicates that circumstances exist which are material, but not so material/pervasive as to affect the entire financial report.

Adverse Opinion

• Expressed when misstatements are so material and pervasive that the financial report is misleading (\text{ASA 705.08/ISA 705.08}
• Indicates the subject matter is misleading.

Disclaimer of Opinion

• Expressed when the auditor cannot obtain sufficient evidence and concludes that undetected misstatements could be both material and pervasive (\text{ASA 705.09/ISA 705.09}$$
• Indicates the auditor is unable to express an opinion.
• Occurs if a scope limitation exists.

Additional Communications - Emphasis of Matter and Other Matter

• ASA 706 (ISA 706) covers situations where the auditor draws attention to matters fundamental to users' understanding (Emphasis of Matter) or other relevant matters (Other Matter).
• Emphasis of Matter is used when a matter is appropriately presented but needs emphasis.
• Examples include:
  • Uncertainty relating to litigation
  • Early application of accounting standards
  • Major catastrophes

Material Uncertainty Related to Going Concern

• If the going concern basis is appropriate but a material uncertainty exists with adequate disclosure, the auditor expresses an unmodified opinion and includes a separate paragraph.
• If disclosure is inadequate, the auditor issues a qualified or adverse opinion.

Other Matter Paragraph (ASA 706.7(b)/ISA 706.7(b))

• Used to highlight matters not presented in the financial report.
• Examples include:
  • Inability to withdraw from an audit due to scope limitations.
  • Elaboration on auditor responsibilities required by national regulations.
  • Financial reports prepared under multiple frameworks.