Auditor's Report
What the domain tests
This section tests the form and content of the auditor's report and the circumstances for each opinion type. Expect case facts requiring selection of unmodified, qualified, adverse or disclaimer opinion.
Core rules
- The report contains title, addressee, opinion, basis for opinion, going concern section where relevant, key audit matters where applicable, responsibilities of management and auditor, signature, place and date.
- Unmodified opinion: the financial statements give a true and fair view.
- Qualified opinion: a material but not pervasive misstatement or scope limitation.
- Adverse opinion: a material and pervasive misstatement.
- Disclaimer: a material and pervasive scope limitation, where the auditor cannot obtain sufficient appropriate evidence.
- Emphasis of Matter draws attention to a matter properly disclosed; it does not modify the opinion. Other Matter refers to matters not presented in the financial statements.
Worked example
The auditor cannot obtain confirmations for receivables representing 40% of total assets. The possible misstatement is material and pervasive, so the auditor issues a disclaimer and states that an opinion cannot be expressed. If the receivables were 8% of assets and alternative procedures gave evidence except for one balance, a qualified opinion may be appropriate. If inventory is overstated by a material and pervasive amount and management refuses to adjust, the opinion is adverse, not a disclaimer.
Traps
Do not use adverse for a scope limitation; do not call a qualified report clean; do not confuse Emphasis of Matter with a qualification; and do not date the report before sufficient evidence is obtained.