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SA 700 Forming an Opinion and Reporting on Financial Statements has to be followed by all independent auditors to report on the correctness of Historical Financial Statements of a Company.
SA 700 deals with the responsibility of the auditor in forming his/her opinion on financial statements. This standard also deals with content and form of the auditor’s report that is issued as an outcome of the audit of the financial statements. This revised standard is effective for auditing of the financial statements beginning April 1st, 2017.
The objectives of an auditor include: 1. Forming an opinion on financial statements that are based on the evaluation of conclusions which are drawn from audit evidence obtained 2. Expressing clearly such opinion via a written audit report
An auditor should express his/her unmodified opinion when he/she concludes that such financial statements are prepared and presented, in all the required material respects, as per the relevant financial reporting framework. But, the auditor should modify his/her opinion in his/her report as per SA 705 in case:
1. The auditor concludes that, as per the audit evidence obtained by him/her, financial statements all together aren’t free of material misstatement,
2. The auditor is not able to obtain adequate appropriate audit evidence for concluding that the financial statements as a whole are free from material misstatement.
In case the financial statements prepared as per the requirements of the fair presentation framework isn’t been able to achieve a fair presentation, the auditor should discuss it with the management and, based on the requirements of relevant financial reporting framework and how such matter is resolved, should determine whether it necessitates the modification of the opinion in his/her report as per SA 705 (Revised).
When financial statements are prepared and presented as per compliance framework, evaluation as to whether such financial statements have achieved fair presentation is not required to be done by the auditor.
However, in case of extremely rare scenarios where the auditor determines that the financial statements are misleading, he/she should discuss the same with management and, based on how such matter is resolved, should decide whether, and how, to bring it in his/her report.
1. Title: The report of the auditor should have a title which clearly specifies that it’s a report pertaining to an independent auditor.
2. Addressee: The auditor’s report should be addressed, as appropriate, depending on the conditions of the engagement.
3. Auditor’s Opinion: The first part of the auditor’s report should provide his/her opinion, and should have heading “Opinion.” The Opinion part of auditor’s report should also:
4. Basis of Opinion: The report of the auditor should have a section, immediately following Opinion section, with heading “Basis for Opinion”, which states that:
5. Going Concern: Wherever applicable, the auditor should report as per SA 570 (Revised)
6. Key Audit Matters: For audits of the complete sets of general purpose financial statements of a listed entity(s), the auditor should communicate the key audit matters in his/her report as per SA 701.
7. Management responsibilities for the Financial Statements: The auditor’s report should have a section with the heading “Responsibilities of Management for the Financial Statements.” The report of the auditor should use the term which is appropriate with respect to the legal framework relevant to such entity and isn’t required to specifically refer to “management”.
This section of auditor’s report should define the responsibilities of the management for:
8. Responsibilities of the Auditor for Audit of the Financial Statements: The auditor’s report should have a section with heading ‘Auditor’s Responsibilities for the Audit of the Financial Statements.’ This particular section of auditor’s report should:
A. Prescribe the objectives of an auditor are to:
B. Prescribe that a reasonable assurance refers to the high level of assurance, however, it isn’t a guarantee that the audit conducted as per SAs would always identify material misstatements when it subsists; and,
C. Mention that the misstatements could arise from error or fraud, and either
9. The responsibilities of the auditor for the audit of financial statements section of his/her report also should:
A. Provide that he/she communicates with the person(s) charged with governance regarding, the intended scope and timing of such audit and noteworthy audit findings (if any), together with any significant flaws in the internal control which he/she identifies during the execution of such audit
B. Provide that the auditor offers person(s) charged with governance a statement that he/she has adhered to applicable ethical requirements with respect to independence and bring it to their notice all relationships and various other matters which could have a bearing on auditor’s independence
C. With respect to audits of financial statements of entities where key audit matters have been communicated as per SA 701, mention that, from the matters communicated with person(s) charged with governance, he/she concludes those matters which were of crucial nature in audit of financial statements of current period and are hence, the key audit matters
10. Other Reporting Responsibilities: In case an auditor addresses other responsibilities of reporting nature in his/her report on financial statements which are in addition to his/her responsibilities under SAs, such other reporting responsibilities should be provided separately as a section in his/her report with the heading titled ‘Report on Other Legal and Regulatory Requirements’. This includes reporting requirements as required under:
11. Signature of the Auditor: The auditor’s report should be signed. The auditor’s report should be signed by an auditor in his personal name. Where a firm is appointed as auditors, the auditor report should be signed in the personal name of auditors and in name of such audit firm. The proprietor/partner signing such report is also required to mention their membership number as assigned by ICAI (Institute of Chartered Accountants of India). They’re also required to include the registration number of the auditing firm, where applicable, as provided by the ICAI, in audit reports which are signed by them.
12. Place of Signature: The auditor’s report should mention the particular location, that is usually the city where audit report is signed.
13. Date of the Auditor’s Report: The auditor’s report should be dated not prior to the date on which auditor has gained adequate and appropriate audit evidence based on which the auditor’s opinion on financial statements, together with evidence that: