Pipara & Co LLP

Forming an Opinion and Reporting on Financial Statements

Introduction

Scope of this SA
  1. This Standard on Auditing (SA) deals with the auditor’s responsibility to form an opinion on the financial statements. It also deals with the form and content of the auditor’s report issued as a result of an audit of financial statements.
  2. SA 7011 deals with the auditor’s responsibility to communicate key audit matters in the auditor’s report. SA 7052 (Revised) and SA 7063 (Revised) deal with how the form and content of the auditor’s report are affected when the auditor expresses a modified opinion or includes an Emphasis of Matter paragraph or an Other Matter paragraph in the auditor’s report. Other SAs also contain reporting requirements that are applicable when issuing an auditor’s report.
  3. This SA applies to an audit of a complete set of general purpose financial statements and is written in that context. SA 8004 deals with special considerations when financial statements are prepared in accordance with a special purpose framework. SA 8055 deals with special considerations relevant to an audit of a single financial statement or of a specific element, account or item of a financial statement. This SA also applies to audits for which SA 800 or SA 805 apply.
  4. The requirements of this SA are aimed at addressing an appropriate balance between the need for consistency and comparability in auditor reporting globally and the need to increase the value of auditor reporting by making the information provided in the auditor’s report more relevant to users. This SA promotes consistency in the auditor’s report, but recognizes the need for flexibility to accommodate particular circumstances of individual jurisdictions. Consistency in the auditor’s report, when the audit has been conducted in accordance with SAs, promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in accordance with globally recognized standards. It also helps to promote the user’s understanding and to identify unusual circumstances when they occur.

1 SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.

2 SA 705(Revised), Modifications to the Opinion in the Independent Auditor’s Report.

3 SA 706(Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report.

4 SA 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks.

5 SA 805, Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement.

Effective Date
  1. This SA is effective for audits of financial statements for periods beginning on or after April 1, 2018.
Objectives
  1. The objectives of the auditor are:
    1. To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and
    2. To express clearly that opinion through a written report.
  2.  
Definitions
  1. For purposes of the SAs, the following terms have the meanings attributed below:
    1. General purpose financial statements – Financial statements prepared in accordance with a general purpose framework.
    2. General purpose framework – A financial reporting framework designed to meet the common financial information needs of a wide range of users. The financial reporting framework may be a fair presentation framework or a compliance framework.

The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and:

  1. Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework; or
  2. Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. Such departures are expected to be necessary only in extremely rare circumstances.

The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (i) or (ii) above.6

  1. Unmodified opinion – The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material

6 SA 200, paragraph 13(a).

respects, in accordance with the applicable financial reporting framework.7

  1. Reference to “financial statements” in this SA means “a complete set of general purpose financial statements, including the related notes.” The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information and any other information required to be included as part of the financial statements by the laws and regulations governing the entity. The requirements of the applicable financial reporting framework determine the form and content of the financial statements, and what constitutes a complete set of financial statements.
  2. Reference to “Accounting Standards” in this SA includes:
  • The Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI)8; or
  • The Standards of Accounting notified by the Central Government in pursuance of section 133 of the Companies Act, 2013 and the Rules thereunder; or
  • The International Financial Reporting Standards (IFRSs); or
  • The International Public Sector Accounting Standards (IPSASs) issued by the International Public Sector Accounting Standards Board;

as may be applicable to the entity.

Requirements
Forming an Opinion on the Financial Statements
  1. The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.9&10
  2. In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account:
    1. The auditor’s conclusion, in accordance with SA 330, whether sufficient

7 Paragraphs 25–26 deal with the phrases used to express this opinion in the case of a fair presentation framework and a compliance framework respectively.

8 For example, the Accounting Standards for Local Bodies issued by ICAI.

9 SA 200, paragraph 11.

10 Paragraphs 25–26 deal with the phrases used to express this opinion in the case of a fair presentation framework and a compliance framework respectively.

appropriate audit evidence has been obtained;11

  1. The auditor’s conclusion, in accordance with SA 450, whether uncorrected misstatements are material, individually or in aggregate;12 and
  2. The evaluations required by paragraphs 12–15.
  1. The auditor shall evaluate whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation shall include consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgments. (Ref: Para. A1–A3)
  2. In particular, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework:
    1. The financial statements adequately disclose the significant accounting policies selected and applied;
    2. The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate;
    3. The accounting estimates made by management are reasonable;
    4. The information presented in the financial statements is relevant, reliable, comparable, and understandable;
    5. The financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and (Ref: Para. A4)
    6. The terminology used in the financial statements, including the title of each financial statement, is appropriate.
  3. When the financial statements are prepared in accordance with a fair presentation framework, the evaluation required by paragraphs 12–13 shall also include whether the financial statements achieve fair presentation. The auditor’s evaluation as to whether the financial statements achieve fair presentation shall include consideration of:
    1. The overall presentation, structure and content of the financial statements; and
    2. Whether the financial statements, including the related notes, represent the

11 SA 330, The Auditor’s Responses to Assessed Risks, paragraph 26.

12 SA 450, Evaluation of Misstatements Identified during the Audit, paragraph 11.

underlying transactions and events in a manner that achieves fair presentation.

  1. The auditor shall evaluate whether the financial statements adequately refer to or describe the applicable financial reporting framework. (Ref: Para. A5– A10)
Form of Opinion
  1. The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
  2. If the auditor:
    1. concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or
    2. is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement,

the auditor shall modify the opinion in the auditor’s report in accordance with SA 705 (Revised).

  1. If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor shall discuss the matter with management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, shall determine whether it is necessary to modify the opinion in the auditor’s report in accordance with SA 705 (Revised). (Ref: Para. A11)
  2. When the financial statements are prepared in accordance with a compliance framework, the auditor is not required to evaluate whether the financial statements achieve fair presentation. However, if in extremely rare circumstances the auditor concludes that such financial statements are misleading, the auditor shall discuss the matter with management and, depending on how it is resolved, shall determine whether, and how, to communicate it in the auditor’s report. (Ref: Para. A12)
Auditor’s Report
  1. The auditor’s report shall be in writing. (Ref: Para. A13–A14)
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