Audit Reporting and Communication
Reporting framework
Master the ISA 700 report structure: title, addressee, opinion, basis for opinion, going concern (ISA 570), key audit matters (ISA 701, for listed entities), responsibilities of management and the auditor, and signature/date. Know ISA 705 (modified opinions: qualified, adverse, disclaimer) and ISA 706 (emphasis of matter, other matter). Understand ISA 260 (communication with those charged with governance) and ISA 265 (deficiencies in internal control). Also know the date of the report and its relationship to subsequent events (ISA 560).
Traps in exam questions
- Confusing a qualified opinion (material but not pervasive) with an adverse opinion (material and pervasive misstatement).
- Mixing emphasis of matter (matter appropriately presented, fundamental to understanding) with other matter (not presented in the statements).
- Forgetting that a disclaimer is used when the auditor cannot obtain sufficient evidence and the effect is material and pervasive.
- Overlooking the requirement to communicate significant findings to those charged with governance.
- Misordering the report date relative to evidence obtained.
Rule of thumb
Two questions decide the opinion: Is there a misstatement or a scope limitation? and Is the effect material and pervasive? Misstatement + pervasive = adverse; scope limitation + pervasive = disclaimer.
Worked example
Management refuses to adjust a material inventory overstatement that pervades the statements. Under ISA 705, the auditor issues an adverse opinion because the misstatement is both material and pervasive.