Q5 - Reading 11.2

Auditor's Opinion Types

ASA 700 (ISA 700) focuses on forming an opinion on financial reports and the content of unmodified auditor's reports.

ASA 705 (ISA 705) addresses modifying auditor's opinions, including:

• Qualified opinion

• Disclaimer of opinion

• Adverse opinion

ASA 706 (ISA 706) involves additional disclosures, such as:

• Emphasis of Matter paragraph: Highlights important matters in the financial report.

• Other Matter paragraph: Highlights relevant matters outside the financial report.

Unmodified Auditor’s Report

Issued when the auditor is satisfied that the financial report:

• Complies with the Corporations Act 2001 and Australian accounting standards.

• Complies with IFRSs.

• Has sufficient appropriate audit evidence.

• Any uncorrected misstatements are immaterial.

• Adequately discloses accounting policies.

Modifications Affecting the Auditor’s Opinion

Modifications require a material effect. Serious modifications (adverse/disclaimer) require pervasive effects, meaning they:

• Are not confined to specific elements.

• Represent a substantial proportion of the report.

• Are fundamental to users’ understanding.

Qualified Opinion

Expressed when misstatements are material but not pervasive, or when sufficient evidence is unobtainable, but the possible effects could be material but not pervasive (ASA 705.07/ISA 705.07).

Adverse Opinion

Expressed when misstatements are material and pervasive, rendering the financial report misleading (ASA 705.08/ISA 705.08). Often due to going concern issues.

Disclaimer of Opinion

Expressed when the auditor can't obtain sufficient evidence, and undetected misstatements could be material and pervasive (ASA 705.09/ISA 705.09). It indicates uncertainty about the financial report's reliability. The disclaimer of opinion the auditor has been unable to collect sufficient appropriate audit evidence and is thus unable to form an opinion regarding the financial report.

Additional Communications

Emphasis of Matter

Draws attention to matters fundamental to understanding the financial report without modifying the opinion. Examples include litigation uncertainty or early adoption of new standards. This should not be a substitute for Key Audit Matters.

Other Matter

Highlights matters relevant to the audit's understanding or the auditor's responsibilities outside the financial report (ASA 706.7(b)/ISA 706.7(b)).

Reporting Responsibilities in Relation to Going Concern

• If going concern basis is inappropriate, the auditor may express an unmodified opinion if there is adequate disclosure and include an Emphasis of Matter paragraph in accordance with ISA 706.

• If management's use of the going concern basis is inappropriate, the auditor should express an adverse opinion.

• If a material uncertainty exists with adequate disclosure, the auditor would express an unmodified opinion and include a separate paragraph in the auditor’s report.

• If there is not adequate disclosure about a material going concern uncertainty, the auditor should express a qualified opinion or adverse opinion in accordance with ISA 705.