Introduction

International Standard on Auditing 700: Forming an Opinion and Reporting on

Financial Statements merupakan panduan bagi guides auditors on how to express opinion
formed on the basis of conclusions reached using audit evidence obtained. This provides the
format of written report called auditors report and explains the requirements regarding
contents and working of auditors report

Executive Summary
Auditors are required to form an opinion on the basis of sufficient appropriate audit evidence
obtained and express it clearly in the form of a written report. In order to form an opinion
auditor must adhere to the requirements of ISA 700 and under the circumstances of
engagement appropriate select the type of opinion to be expressed i.e. qualified, adverse or
disclaimer of opinion. Auditor must follow the guidelines of ISA 700 regarding the format
and content of auditors report and if any supplementary information is provided by the
management auditor must ensure it is consistent with audited financial statements.

1 Expressing Auditors Opinion

Auditor is required to express opinion in auditors report. As this report is importance an
auditing standard has been issued that guides regarding the format and contents of audit
report so that such reports are consistent as consistency supplements the confidence and
understanding of the users of financial statements.
One important thing to remember is that ISA 700 deals with the complete set of general
purpose financial statements and not with special purpose financial statements. Also it does
not deal with the audit of particular financial statement out of complete set or any particular
component of financial statement.

2 Objective
According to ISA 700 objective of the auditor is to:

Form an opinion on the basis of evidence obtained through application of audit

procedures

Write a report containing clear expression of auditors opinion explaining the basis of
such opinion.

Financial Statements Debrief

Financial statements comprise:
1. Statement of financial position
2. Statement of comprehensive income
3. Statement of changes in Equity
4. Statement of cash flows
5. Notes to the accounts
Financial statements serves information needs of users. Every user has different
requirements depending on their decisions.
However, organizations cannot serve individual needs of every user therefore; financial
statements are prepared considering general needs of users that is capable of meeting
majority of information requirements of financial statements. Such financial statements are
called general purpose financial statements. The accounting framework used to prepare
general purpose financial statements is called general purpose accounting framework.
But in some situations needs are of special nature general purpose financial statements
cannot cater. For such special needs special purpose financial statements are prepared using
special purpose accounting framework.
ISA 700 helps auditor express opinion on general purpose financial statements.
On the other hand to express opinion on special purpose financial statements ISA
800 guidelines are to be followed.

3 Forming an opinion

The auditors opinion on general purpose financial statements is if they are they prepared, in
all material respects, in accordance with applicable financial reporting framework.
But before auditor is able to express an opinion, he is required to gather sufficient
appropriate audit evidence as only sufficient appropriate audit evidence reduces the audit
risk to an acceptably low level.
Audit risk is considered to have reduced to an appropriate level if auditor has obtained
reasonable assurance that financial statements are free from material misstatements.
To conclude that reasonable assurance has been obtained, auditor shall consider:
1. If sufficient appropriate audit evidence has been obtained
2. Whether uncorrected misstatements are material individually or in aggregate and
appropriate steps have been taken
3. The results of evaluation in which auditor is required to evaluate:
1. Whether financial statements are prepared in accordance with applicable
financial reporting framework by evaluating if:
1. Significant policies selected and applied are adequately disclosed
2. Accounting policies so selected and applied are consistent frameworks
requirements
3. Managements estimates are reasonable
4. Financial statements fulfill qualitative requirements i.e. relevance,
reliability, understandability, comparability etc.
5. Adequate disclosures accompany financial statements so that user can
understand the effects of material transactions
6. Terminology used, including title of financial statements is appropriate
2. Appropriateness of financial statements considering:
1. The qualitative aspects of entitys accounting process

2. Probability of distortion in financial statements due to managements

bias
3. Whether applicable financial reporting framework has been appropriately
referred to or described.

4 Forms of opinion
The auditor shall express an unmodified opinion if:
Auditor concludes that financial statements are prepared, in all material respects, in
accordance with applicable financial reporting framework.
Or in other words:
Financial statements are giving true and fair view of the business.
The auditor shall give modified opinion if:
1. Audit evidence obtained makes auditor conclude that financial statements are not
free from material misstatements; or
2. Auditor is unable to obtain sufficient appropriate audit evidence whether financial
statements are free from material misstatements. For modified opinion auditor is
required to follow guidelines of ISA 705.

5 Contents of Auditors report with

unmodified opinion
Auditor expresses his opinion on entitys financial statements in the form of
a written report. Oral expression cannot substitute a written report.
As auditors expression enhances the credibility of financial statements therefore auditors
report follows a certain format and comprises of specific elements and content.
Local applicable laws and regulations may require auditor to change the content of auditors.
However, as per ISA 700 auditors report has following elements:

5.1 Title
Auditors report must bear clear title that indicates that it is a report from an auditor. For
example; Independent Auditors Report. Inclusion of title supplements the fact that it is a
report from an auditor who is qualified as per code of ethics and applicable laws and
regulations.
5.2 Addressee
Addressee are the audience to whom report is meant to be served. For example;
shareholders. But addressee may vary from situation to situation and must be mentioned in
the report.
5.3 Introductory paragraph
This paragraph conveys some basic yet important facts regarding financial statements which
are:
1. Name of the entity whose financial statements are audited
2. Clear statement that financial statements have been audited
3. Title of financial statements that comprise complete set of financial statements
4. Summary of important policies and other explanatory information which may or may
not form part of complete set of financial statements.
5. Clearly mentioning the time period covered by the financial statements that are
audited
5.4 Managements responsibility for the financial statements
Auditor is required to include this section with the heading in auditors report in which he
details the responsibility of those who are duty bound to prepare financial statements to
whom auditor may refer to as management but he is allowed to use any term that best
describes the responsible personnel.
While describing the responsibility of management (or also those charged with governance
also where appropriate), auditor is required to describe that is management who is
responsible to prepare financial statements and to implement internal control system to

assist management in preparing financial statements that are free from material
misstatements.
5.5 Auditors responsibility
This section which is included with the same heading in the auditors report describes the
responsibility of auditor is to express an opinion the financial statements prepared by the
management.
Auditor shall describe that auditor complied with applicable ethical requirements and
auditing standards to obtain reasonable assurance.
While describing what auditors responsibility includes, he must clarify that:
1. Audit is application of procedures to obtain evidence about amounts and information
disclosed in the financial statements
2. The selection of procedures is a result of auditors judgment considering the
circumstances of engagement
3. Audit includes evaluation of:
1. Appropriateness of policies selected and applied
2. Reasonableness of accounting estimates
3. Overall presentation of financial statements
The auditors report must also include the statement if auditor believes that as a result of
audit procedures applied, sufficient appropriate audit evidence has been obtained and the
same can be used as basis for auditors opinion.
5.6 Auditors opinion
Auditors report must include this section with the same heading and while expressing
unmodified opinion auditor may use any of the following phrases:
The financial statements present fairly, in all material respects, [..] in accordance
with [applicable financial reporting framework e.g. International Accounting Standards]
Or

The financial statements give true and fair view of [.] in accordance with [applicable
financial reporting framework e.g. International Accounting Standards]
To express an unmodified opinion as per International Auditing Standards, financial
reporting framework does not necessarily have to be International Financial Reporting
Standards. It can be any as per local laws and regulations.
5.7 Other reporting responsibilities
In some jurisdictions auditor is required to express opinion on additional matters as well
beside financial statements. For example internal control system. If such is the case, then
opinion on such matters will expressed after the opinion on financial statements in this
section.
5.8 Signature of the auditor
Auditors report is required to be signed by the auditor. The signature may be the name of
the audit firm or signatures of the auditor or both. In some jurisdictions auditor may have to
disclose:

Accountancy designation of auditor

Auditor or firm has been licensed by the appropriate authority

5.9 Date of auditors report

It must include the data evidencing when auditor has issued it. However, this cannot be
dated earlier than:

Sufficient appropriate evidence has been obtained by the auditor

Financial statements are completely prepared as asserted by those responsible for

preparing financial statements

5.10 Auditors address

This is the address where auditor practices

6 Supplementary information with Financial

Statements
If supplementary information has been included with the financial statements by the
management then auditor shall evaluate if such information is consistent with the financial
statements and has been differentiated from the audited financial statements.
If management refuses to correct the presentation of such supplementary information that
may confuse the user and take it as part of financial statements then auditor shall clearly
state that such supplementary information is not audited