Question

Please provide answers next to the questions provided. Most questions can be answered with 3 or less sentences, but please do not exceed 5 sentences.

What is the key difference in the unmodified audit opinion between a public and private company?

Provide a fictitious situation that would result in an adverse opinion. Make sure you explain the conditions that exist in your situation that would lead to the adverse opinion and the materiality level.

Answer 1

ISA 700 is used to form unmodified audit opinion and ISA 705 is the guidance that should use by the auditor to issue a modified opinion.

As required by the standard, auditors will have to issue the opinion on the client’s financial statements whether those financial statements, after audited, are prepared in all material respected and compliance with the framework that they used or not.

And if the financial statements meet all of these things, then unmodified opinion shall be issued.

Yet, if the financial statements have some problem, auditors need to use ISA 705 to form their opinion based on those problems.

Audit Opinion Flow Chart

In general, there are two main types of audit opinions: Unmodified and Modified Opinion.

An unmodified opinion, auditors issues this opinion to financial statements that prepared in all material respect and comply with accounting standards being used as well as applicable regulation.

However, for modified opinion, there are three sub opinions that are issued to financial statements that are not prepared in a material respect with others matter.

Unmodified Opinion:

As mentioned above, unmodified opinion is expressed to the financial statements that prepared in all material respect and complying with the applicable framework.

This opinion is issued once auditors obtain sufficient and appropriate audit evidence to the financial statements as the result of their testing.

Please note that the auditor is not providing absolute assurance on the financial statements that is why it uses words “in all material respect”.

All material respect here means there is no material misstatement in the financial statements, but there might be an immaterial misstatement.

It is okay to have immaterial misstatement in the financial statements as it is not lead users of FS to make the wrong decision. To form an unmodified opinion, ISA 700 is the reference to follow.

Now let move to others’ three opinions of modified opinion.

Qualified Opinion:

Qualifies opinion is the type of modified audit opinion where auditors make a conclusion after their testing that there is material misstatement found in the financial statements; however, those misstatements are not pervasive. Pervasive here is a bit subjective as it is based on auditor’s judgment.

But, as said in standard, misstatement is pervasive to financial statements if those misstatements are not effecting the financial statements and users’ decision making. The auditor may issue a qualified opinion on the opening balance of financial statements of the previous year’s financial statements that were not audited by them.

Adverse Opinion:

The adverse opinion is issued to the financial statements where auditors examined and concluded that those financial statements are materially misstated and pervasive. Compared to qualified opinion, adverse opinion is more serious than.

This opinion is the message to users of financial statements that they should not rely on these financial statements in their decision making.

This opinion is a bit different from a qualified opinion. For a qualified opinion, the auditor found material misstatement in the financial statements, but those misstatements are not pervasive.

Yet, in Adverse opinion, misstatements are both material and pervasive.

Disclaimer of Opinion:

Disclaimer of opinion, by the way, is different from both qualified and adverse. The auditor issued the disclaimer of opinion where they could not obtain and unable to access the audit evidence for individual items or in aggregation in the to support their testing.

Auditor believes that for those items that they are not able to access and obtain information could be materially misstated and pervasive.