Audit Reporting and Communication
Forming the opinion
The auditor evaluates the evidence and concludes whether the financial statements give a true and fair view (or are presented fairly). The opinion may be unmodified or modified. A modified opinion is either qualified, adverse, or a disclaimer. The choice depends on the nature of the matter (material versus pervasive) and whether it is a misstatement or an inability to obtain sufficient appropriate evidence.
Key report elements
Know the required sections: opinion, basis for opinion, going concern where relevant, key audit matters for listed entities, responsibilities of management, and responsibilities of the auditor. Understand emphasis of matter and other matter paragraphs, which do not modify the opinion.
Communication
Understand communication with those charged with governance, including significant findings, difficulties encountered, and independence matters. Also know the auditor's responsibilities regarding subsequent events and other information.
Traps in questions
Distractors confuse emphasis of matter with a modified opinion. Others misapply the material/pervasive matrix, or suggest a disclaimer is appropriate when the auditor disagrees with management on a material matter. Watch for confusion between key audit matters and emphasis of matter.
Rule of thumb
Material but not pervasive misstatement: qualified. Material and pervasive misstatement: adverse. Material but not pervasive inability to obtain evidence: qualified. Material and pervasive inability: disclaimer.
Worked example
Management refuses to allow confirmation of a material receivable, and no alternative evidence exists. The possible effect is material but not pervasive, so the auditor issues a qualified opinion due to limitation of scope.