Page 137 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

SA 705 Modifications to The Opinion in The Independent Auditor’s Report

(CNO - SA 705.020) Introduction:

Modified Opinions: SA 705 deals with the auditor’s responsibility to issue an appropriate report
in circumstances when, in forming an opinion in accordance with SA 700 (Revised), the auditor concludes that
a modification to the auditor’s opinion on the financial statements is necessary.

Types of Modified Opinions:
Types of Modified Opinions as per SA 705: (i) Qualified Opinion (ii) Adverse Opinion (iii) Disclaimer of
Opinion
Decision Regarding Modified Opinion: The decision regarding which type of modified opinion is appropriate
depends upon:
(a) The nature of the matter giving rise to the modification, that is, whether the financial statements are materially
misstated or, in the case of an inability to obtain sufficient appropriate audit evidence, may be materially
misstated; and
(b) The auditor’s judgment about the pervasiveness of the effects or possible effects of the matter on the financial
statements.

Objective
Objective of the Auditor: The objective of the auditor is to express clearly an appropriately modified opinion
on the financial statements that is necessary when:
Material misstatement: The auditor concludes, based on the audit evidence obtained, that the financial
statements as a whole are not free from material misstatement; or
Unable to Obtain SAAE: The auditor is unable to obtain sufficient appropriate audit evidence (SAAE) to
conclude that the financial statements as a whole are free from material misstatement.

Circumstances When a Modification to the Auditor’s Opinion is Required:
Circumstances for Modification: The auditor shall modify the opinion in the auditor’s report when:
Material misstatement: The auditor concludes that, based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement; or
Unable to Obtain SAAE: The auditor is unable to obtain sufficient appropriate audit evidence to conclude that
the financial statements as a whole are free from material misstatement.

(CNO - SA 705.040) Determining the Type of Modification to the Auditor’s Opinion:
Qualified Opinion:
Qualified Opinion: The auditor shall express a qualified opinion when
1. Unable to Obtain SAAE Possible Effects Material but Not Pervasive: 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.
2. Misstatements Material but Not Pervasive: 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
Adverse Opinion:
Misstatements Material & Pervasive: 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:
Unable to Obtain SAAE Possible Effects Material & Pervasive: 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

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