Requirements of ISA 700

The auditor must form an opinion if a business financial statement is prepared in compliance with the applicable financial reporting framework.

The formation of an audit opinion requires the auditor to ensure sufficient and appropriate audit evidence is obtained. Additionally, evaluation must be made regarding qualitative aspects of accounting policies and management bias in preparing financial statements.

Similarly, the auditor shall evaluate,

1. Disclosure of significant accounting policies selected and applied.
2. Reasonableness of accounting standards.
3. Reliability & comparability of financial information.
4. Adequacy of disclosures.

Formation of audit opinion

The unmodified audit opinion is issued when the auditor concludes that the financial statement was prepared in compliance with the applicable financial reporting framework. However, a modified audit opinion is issued when the auditor concludes that the financial statements are not free from material misstatement (qualified audit opinion) or is unable to obtain sufficient and appropriate audit evidence.

If the financial statement is prepared according to the compliance framework, the auditor is not required to evaluate its fair presentation. However, if the financial statement is misleading, the auditor shall discuss it with management and communicate it in the audit report.

Content of auditor’s report

Following is the content of the audit report.

Summarized content

• Title, address, opinion, basis of opinion, key audit matters, responsibilities, signature, auditor’s address, and supplementary information are included in the audit report.
• The auditor must clearly state the entity’s name and the audited financial statement.
• If financial statement is prepared in line with a fair presentation framework. In that case, the reporting content will include a financial statement that gives a true and fair view or financial statements that are presented fairly. It’s in the case of unmodified audit opinion.
• If the financial statement is prepared as per the compliance framework. In that case, the auditor will state that the financial statement is prepared in all material aspects by (name of applicable financial reporting framework used in preparing the financial statement). It’s when expressing unmodified audit opinion.

Basis of opinion

• In this section, the auditor states the auditing framework (ISAs), auditor’s responsibilities, independence, ethical requirements, and jurisdictions.
• If sufficient and appropriate audit evidence was obtained.
• Report going concern compliance with ISA 570.

Key audit matters

The auditor is required to communicate key audit matters in compliance with ISA 701.

Responsibilities for financial statement

Responsibilities of management—Management is responsible for preparing financial statements in compliance with applicable financial reporting standards. Additionally, internal controls implemented result in the preparation of financial statements free from material misstatement due to error or fraud. Similarly, management is responsible for assessing going concern statis and disclosing the same.

Responsibilities of auditor—The auditor is responsible for obtaining sufficient and appropriate audit evidence, forming an audit opinion, and reporting on the same. Additionally, the auditor must define materiality and state that reasonable assurance is high-level assurance but not absolute.

Likewise, describe the risk of material misstatement, understand internal controls, conclude using the going concern assumption, and provide the name of the audit partner, signature, and the date of the auditor’s report.

Wrap up

 ISA 700 defines the auditor’s responsibility for obtaining sufficient & appropriate audit evidence and reporting on the audit report.

The content of the auditor’s report includes the audit report title, audit opinion, basis of opinion, key audit matters, auditor’s responsibility, management’s responsibility, engagement partner name, date, and signature etc.