3 types of modified opinion

Auditor’s report containing a modified

opinion
• 1. Having obtained sufficient appropriate audit
evidence, the auditor concludes that
missstaments,individually or in the aggregate are
material but not persvasive to the financial
statments
• 2 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 statments of
undetected misstatments if any could be material
but not pervasive
Auditor’s report containing an adverse
opinion
• 1 . 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 statments
• 2. an adverse opinion is issued when the effect of a
dissagreement is so material and persasive to be the
financial statments that the auditor concludes that a
qualification of his report is not adequate to disclose
the misleading or inclompete nature of financial
statments.
 Auditor’s report containing a
disclaimer of opinion
• 1. The auditor will disclaim an opinion when he is unable to
obtain sufficient appropriate audit evidence on which to
base the opinion and he conlcudes that the possible effects
on the financial statments of undetected missstatments
could be both material and pervasive.
• 2. The auditor would also disclaim an opinion when in
extremely rare circumstances involving multiple
uncertainties, the auditor concludes that not with standing
having obtained sufficient appropriate audit evidence
regrading each of the individual uncertainties it is not
possible to form an opinion on the financial statments due
the potential interaction of the uncertainties and their
possible cumulative effect on the financial statments
 Emphasis of a matter paragraph
• An emphasis of matter paragraph is a paragraph
included in the auditor’s report that refers to a matter
appropriately presented or disclosed in the financial
statments that, in the auditor’s judgment, is of such
importance that is fundamental to users undestanding
of the financial statments.
• The other matter paragraph is a paragraph included in
the auditor’s report that refers to a matter other than
those presented or disclosed in the financial statments
that, in the auditor’s judgement, is relevant to users
understanding of the audit, the auditor’s
responsibilities or the auditor’s report
When the auditor includes an emphasis of matter
paragraph in the auditor’s report, the auditor shall:
a. Includes it immediately after the opinion
paragraph in the auditor’s report
b. Use the heading “emphasis of matter”
c. Include in the paragraph a clear reference to the
matter being emphasized and to where relevant
disclosures that fully describe the matter can be
found in the financial statments
d. Indicate that the auditor’s opinion is not
modified in respect of the matter emphasized.
An auditor might write an emphasis of
a matter paragraph
1. if there is a significant uncertainly which may affect the financial
statments, the resolution of which is dependent upon future events.
Examples of uncertainties that might be emphasised include:
• a. The existence of related party transactions b. Important
accounting matters occuring subsequent to the balance sheet date
• c. Matters affecting the comparability of financial statments with
those of previous year (change in accounting methods)
• d. Litigation, long-term contracts, recoverability of asset values,
losses on discontinued operations.

2. To highlight a material matter regarding a going concern problem.

 Uncertainitites in the emphasis of a
matter paragraph
• Examples of uncertainities that might be emphasised include
the existence of related party transactions, important
accountig matters occuring subsequent to the balance
sheetdate and matters affecting the comparability of
financial statments with those of previous years.
• Other uncertainities,depending on their materiality and
country’s laws, may lead to a modification of the unmodified
report or a modified report or disclaimer. Examples include:
the outcome of major litigation and the outcome of long
term contracts, estimates of recoverabilit of asset values and
losses on discontinued operations. If an enitity refuses to
make a necessary amendement to information
accompanying the financial statments and when there are
additional statutory reporting responsibilities, the report also
be modified.
Illustration 12.7 dan 12.8
Going concern emphasis of matter
• The going concern assumption is one of the
fundamental assumptions underlying preparation of
financial statments. ISA 570 establishes standards and
provides guidance on the auditor’s responsibilities
regarding the appropriateness of the going concern
assumption as a basis for preaparing financial
statments. When a question arises regarding the
appropriateness of the going concern assumption, the
auditor should gather sufficient appropriate audit
evidence to attempt to resolve, to the auditor’s
satisfaction, the question regarding the enitity’s ability
to continue in opeartion for the foreseeable future.
• If adequate disclosure is made in the financial
statements, the auditor must express an
unmodified opinion and include an emphasis of
matter paragraph in the auditor’s report to
highlight the existence of a mterial uncertainty
relating to the event or condition that may cast
significant doubt on the entity’s ability to
continue as a going concern and draw attention
to the note in the financial statments that
discloses the event or condition.
 Going concern disclosure
• The going concern disclosure should
1. Describe the principal conditions that raise doubt
2. State that there are doubts about going concern;
therefore the entity may be unable to realise its
assets and discharge its liabilities in the normal course
of business
3. State that the financial statments don’t include any
adjustments relating to the recoverability and
classification of recorded asset amounts or to
amounts and classification of liabilities that may be
necessary should be the enitity be unable to continue
as a going concern.
12.6 Circumstances that may result in
other than unmodified opinion
• There are least two circumstances where the
auditor may not be able to express an
unmodified opinion:
1. A limitation in scope (inability to obtain
sufficient appropriate audit evidence)
• The auditor’s judgement about the pervasiveness
of the effects or possible effects of the matter on
the financial statments.
The auditor may disagree with management
regarding:
1. The acceptability of the accounting policies
selected
2. The method of policy application, inlcuding the
adequac of valuations and disclosures in the
financial statements
3. 3. the compliance of the financial statments with
relevant regulations and statutory requirements
• The table bellow illustrates how the auditor’s
judgement about the nature of the matter
giving rise to the modification and the
pervasiveness of its effects or possible effects
on the financial statments affects the type of
opinion to be expressed.