Page 172 - CA Final PARAM Digital Book.

Part 3- SA 705

QNO Types of Modification Old Course – (N12E, SM17, PM17, N17R, N17E, M19M, SM21)
113.000 TITANIUM CNO— SA 705.040 New Course – (SM23)
If financial statements prepared in accordance with the requirements of a fair presentation framework do
not achieve fair presentation, the auditor shall discuss the matter with management and, depending on the
requirements of the applicable financial reporting framework and how the matter is resolved, shall
determine whether it is necessary to modify the opinion in the auditor’s report in accordance with SA 705
Under SA 705, in what circumstances does the report of the statutory auditor require modifications? What
are the types of modifications possible to the said report?
OR

Explain the circumstances which require a modification to the Auditor's Opinion
OR
ADKS & Co LLP are the newly appointed statutory auditors of PKK Ltd. During the course of audit, the
statutory auditors have come across certain significant observations which they believe could lead to
material misstatement of financial statements. Management has a different view and does not concur with
the view of the statutory auditors. Considering this the statutory auditors are determining as to how to
address these observations in terms of their reporting requirement. Please advise.
Answer Part I -- Relevant Standards & Laws
▪ SA 705 – Modifications To The Opinion In The Independent Auditor’s Report
Part II -- Requirements of Relevant Standards & Laws

As per SA 705 -
The auditor shall modify its opinion in the auditor s report if :

The auditor obtains S&A audit evidence that or The auditor is unable to obtain S&A audit
the FST as a whole are not free from material evidence that the FST as a whole are free
misstatement. from material misstatement.

➢ Modifications in Audit Report: As per SA 705, “Modifications to the Opinion in the Independent
Auditor’s Report”, the auditor may modify the opinion in the auditor’s report in the following
circumstances:
• If the auditor concludes that, based on the audit evidence obtained, the financial statements
as a whole are not free from material misstatement; or
• If the auditor is unable to obtain sufficient appropriate audit evidence to conclude that, the
financial statements as a whole are free from material misstatement.

If financial statements prepared in accordance with the requirements of a fair presentation framework
do not achieve fair presentation, the auditor shall discuss the matter with management and,
depending on the requirements of the applicable financial reporting framework and how the matter
is resolved, shall determine whether it is necessary to modify the opinion in the auditor’s report in
accordance with SA 705

➢ Types of Modification to the Auditor’s Opinion:
As per SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”, modified opinion
may be defined as a qualified opinion, an adverse opinion or a disclaimer of opinion.
Types of modifications possible to the said report are below mentioned:

• Qualified Opinion:

• The auditor shall express a qualified opinion when 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

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