Types of opinions provided by the Auditor

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Topics of Discussion

Opinions

Unmodified Emphasis of matter paragraph Qualified Disclaimer Adverse

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Unmodified Opinion
The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

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Unmodified Opinion

In our opinion, the financial statements give a true and fair view of (or present fairly, in all material respects,) the financial position of ABC Company as of December 31, 20X1, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

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Matters that do not affect the Auditors opinion

Emphasis of matter

Additional communication in the auditors report when the auditor considers it necessary to: (a) Draw users attention to a matter or matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users understanding of the financial statements; or (b) Draw users attention to any matter or matters other than those presented or disclosed in the financial statements that are relevant to users understanding of the audit, the auditors responsibilities or the auditors report.

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Matters that do not affect the Auditors opinion

Examples of circumstances where the auditor may consider it necessary to include an Emphasis of Matter paragraph are: An uncertainty relating to the future outcome of exceptional litigation or regulatory action. Early application (where permitted) of a new accounting standard (for example, a new International Financial Reporting Standard) that has a pervasive effect on the financial statements in advance of its effective date. A major catastrophe that has had, or continues to have, a significant effect on the entitys financial position.

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Emphasis of matter paragraph

We draw attention to Note X to the financial statements which describes the uncertainty related to the outcome of the lawsuit filed against the company by XYZ Company. Our opinion is not qualified in respect of this matter.

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Matters that do affect the Auditors opinion

Qualified Opinion Disclaimer of opinion Adverse Opinion

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Matters that do affect the Auditors opinion Nature of Matter Giving Rise to the Modification Auditors Judgment about the Pervasiveness of the Effects or Possible Effects on the Financial Statements

Material but Not Pervasive Financial statements are materially misstated Qualified opinion

Material and Pervasive

Adverse opinion

Inability to obtain sufficient Qualified opinion appropriate audit evidence

Disclaimer of opinion

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Pervasive effects on the financial statements are

those that, in the auditors judgment: (a) Are not confined to specific elements, accounts or items of the financial statements; (b) If so confined, represent or could represent a substantial proportion of the financial statements; or (c) In relation to disclosures, are fundamental to users understanding of the financial statements.

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a material misstatement of the financial statements may arise in relation to: (a) The appropriateness of the selected accounting policies; (1) The selected accounting policies are not consistent with the applicable financial reporting framework; or (2) The financial statements, including the related notes, do not represent the underlying transactions and events in a manner that achieves fair presentation. (b) The application of the selected accounting policies; (1) When management has not applied the selected accounting policies consistently with the financial reporting framework, including when management has not applied the selected accounting policies consistently between periods or to similar transactions and events (consistency in application); or (2) Due to the method of application of the selected accounting policies (such as an unintentional error in application). (c) The appropriateness or adequacy of disclosures in the financial statements. (1) The financial statements do not include all of the disclosures required by the applicable financial reporting framework; (2) The disclosures in the financial statements are not presented in accordance with the applicable financial reporting framework; or (3) The financial statements do not provide the disclosures necessary to achieve fair presentation.
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Limitation of scope
The auditors inability to obtain sufficient appropriate audit evidence (also referred to as a limitation on the scope of the audit) may arise from: (a) Circumstances beyond the control of the entity; The entitys accounting records have been destroyed. The accounting records of a significant component have been seized indefinitely by governmental authorities. (b) Circumstances relating to the nature or timing of the auditors work; The entity is required to use the equity method of accounting for an associated entity, and the auditor is unable to obtain sufficient appropriate audit evidence about the latters financial information to evaluate whether the equity method has been appropriately applied. The timing of the auditors appointment is such that the auditor is unable to observe the counting of the physical inventories. The auditor determines that performing substantive procedures alone is not sufficient, but the entitys controls are not effective. (c) Limitations imposed by management. Management prevents the auditor from observing the counting of the physical inventory. Management prevents the auditor from requesting external confirmation of specific account balances. An inability to perform a specific procedure does not constitute a limitation on the scope of the audit if the auditor is able to obtain sufficient appropriate audit evidence by performing alternative procedures.

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Qualified Opinion

When the auditor expresses a qualified opinion due to a material misstatement in the financial statements, the auditor shall state in the opinion paragraph that, in the auditors opinion, except for the effects of the matter(s) described in the Basis for Qualified Opinion paragraph: The financial statements have been prepared, in all material respects, in accordance with the applicable financial reporting framework. When the modification arises from an inability to obtain sufficient appropriate audit evidence, the auditor shall use the corresponding phrase except for the possible effects of the matter(s) ... for the modified opinion.

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When the auditor expresses an adverse opinion, the auditor shall state in the opinion paragraph that, in the auditors opinion, because of the significance of the matter(s) described in the Basis for Adverse Opinion paragraph: The financial statements have not been prepared, in all material respects, in accordance with the applicable financial reporting framework When the auditor disclaims an opinion due to an inability to obtain sufficient appropriate audit evidence, the auditor shall state in the opinion paragraph that: (a) Because of the significance of the matter(s) described in the Basis for Disclaimer of Opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion; and, accordingly, (b) The auditor does not express an opinion on the financial statements.

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Qualified opinion Financial statements are materially misstated Basis for Qualified Opinion The companys inventories are carried in the statement of financial position at xxx. Management has not stated the inventories at the lower of cost and net realizable value but has stated them solely at cost, which constitutes a departure from International Financial Reporting Standards. The companys records indicate that had management stated the inventories at the lower of cost and net realizable value, an amount of xxx would have been required to write the inventories down to their net realizable value. Accordingly, cost of sales would have been increased by xxx, and income tax, net income and shareholders equity would have been reduced by xxx, xxx and xxx, respectively. Qualified Opinion In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of ABC Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

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Adverse opinion Financial statements are materially misstated Basis for Adverse Opinion As explained in Note X, the company has not consolidated the financial statements of subsidiary XYZ Company it acquired during 20X1 because it has not yet been able to ascertain the fair values of certain of the subsidiarys material assets and liabilities at the acquisition date. This investment is therefore accounted for on a cost basis. Under International Financial Reporting Standards, the subsidiary should have been consolidated because it is controlled by the company. Had XYZ been consolidated, many elements in the accompanying financial statements would have been materially affected. The effects on the consolidated financial statements of the failure to consolidate have not been determined. Adverse Opinion In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the consolidated financial statements do not present fairly (or do not give a true and fair view of) the financial position of ABC Company and its subsidiaries as at December 31, 20X1, and (of) their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

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Qualified opinion Inability to obtain sufficient appropriate audit evidence Limitation imposed by management

Basis for Qualified Opinion ABC Companys investment in XYZ Company, a foreign associate acquired during the year and accounted for by the equity method, is carried at xxx on the statement of financial position as at December 31, 20X1, and ABCs share of XYZs net income of xxx is included in ABCs income for the year then ended. We were unable to obtain sufficient appropriate audit evidence about the carrying amount of ABCs investment in XYZ as at December 31, 20X1 and ABCs share of XYZs net income for the year because we were denied access to the financial information, management, and the auditors of XYZ. Consequently, we were unable to determine whether any adjustments to these amounts were necessary. Qualified Opinion In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of ABC Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

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Disclaimer of opinion Limitation imposed by management

Basis for Disclaimer of Opinion The companys investment in its joint venture XYZ (Country X) Company is carried at xxx on the companys statement of financial position, which represents over 90% of the companys net assets as at December 31, 20X1. We were not allowed access to the management and the auditors of XYZ, including XYZs auditors audit documentation. As a result, we were unable to determine whether any adjustments were necessary in respect of the companys proportional share of XYZs assets that it controls jointly, its proportional share of XYZs liabilities for which it is jointly responsible, its proportional share of XYZs income and expenses for the year, and the elements making up the statement of changes in equity and cash flow statement. Disclaimer of Opinion Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements.

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Disclaimer of opinion- Limitation imposed by circumstances

Basis for Disclaimer of Opinion We were not appointed as auditors of the company until after December 31, 20X1 and thus did not observe the counting of physical inventories at the beginning and end of the year. We were unable to satisfy ourselves by alternative means concerning the inventory quantities held at December 31, 20X0 and 20X1 which are stated in the statement of financial position at xxx and xxx, respectively. In addition, the introduction of a new computerized accounts receivable system in September 20X1 resulted in numerous errors in accounts receivable. As of the date of our audit report, management was still in the process of rectifying the system deficiencies and correcting the errors. We were unable to confirm or verify by alternative means accounts receivable included in the statement of financial position at a total amount of xxx as at December 31, 20X1. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of recorded or unrecorded inventories and accounts receivable, and the elements making up the statement of comprehensive income, statement of changes in equity and statement of cash flows. Disclaimer of Opinion Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements.

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The End
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