Department of Finance

Faculty of Commerce and Management Studies

University of Kelaniya
B.B.Mgt (Special) Degree in Finance

Academic Year 2017/2018 Year II -

Semester I

BFIN 21433 – Corporate Compliances

SLAuS 700: (REVISED) FORMING AN OPINION AND REPORTING ON

FINANCIAL STATEMENTS

1. Scope

This Sri Lanka Auditing Standard (SLAuS) 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.

The requirements of this SLAuS 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.

2. Effective Date

This SLAuS is effective for audits of financial statements for periods ending on or after
31st March 2018.

3. Objectives

The objectives of the auditor are:

(a) To form an opinion on the financial statements based on an evaluation of

the conclusions drawn from the audit evidence obtained; and

(b) To express clearly that opinion through a written report.

4. Definitions

 General purpose financial statements: Financial statements prepared in

accordance with a general purpose framework.

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  General purpose framework: A financial reporting framework designed to meet
the common financial information needs of a wide range of users.
 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.

 Fair presentation framework: financial reporting framework that requires

compliance with the requirements of the framework and Acknowledges explicitly
or implicitly that, to achieve fair presentation of the financial statements

 Compliance Framework: financial reporting framework that requires

compliance with the requirements of the framework, but does not contain the
acknowledgements

5. Requirements

5.1 Forming an Opinion on the Financial Statements

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.

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. 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.

In particular, the auditor shall evaluate whether, in view of the requirements of the
applicable financial reporting framework:
(a) The financial statements appropriately disclose the significant accounting
policies selected and applied. In making this evaluation, the auditor shall
consider the relevance of the accounting policies to the entity, and whether
they have been presented in an understandable manner.
(b) The accounting policies selected and applied are consistent with the applicable
financial reporting framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The information presented in the financial statements is relevant, reliable,
comparable, and understandable. In making this evaluation, the auditor shall
consider whether:
 The information that should have been included has been included, and whether

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 such information is appropriately classified, aggregated or disaggregated, and
characterized.
 The overall presentation of the financial statements has been undermined by
including information that is not relevant or that obscures a proper
understanding of the matters disclosed.
(e) 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
(f) The terminology used in the financial statements, including the title of each
financial statement, is appropriate.

5.2 Form of Opinion

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.
If the auditor:
(a) Concludes that, based on the audit evidence obtained, the financial statements as a
whole are not free from material misstatement; or
(b) 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 SLAuS
705 (Revised).

5.3 Auditor’s Report

The auditor’s report shall be in writing.

Auditor’s Report for Audits Conducted in Accordance with Sri Lanka Auditing
Standards

 Title

The auditor’s report shall have a title that clearly indicates that it is the report of an
independent auditor. A title indicating the report is the report of an independent auditor,
for example, “Independent Auditor’s Report,” distinguishes the independent auditor’s
report from reports issued by others.

 Addressee
The auditor’s report shall be addressed, as appropriate, based on the circumstances of
the engagement.

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The auditor’s report is normally addressed to those for whom the report is prepared,
often either to the shareholders or to those charged with governance of the entity
whose financial statements are being audited.

 Auditor’s Opinion
The first section of the auditor’s report shall include the auditor’s opinion, and shall have
the heading “Opinion.” This shall;

(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement comprising the financial statements;
(d) Refer to the notes, including the summary of significant accounting
policies; and
(e) Specify the date of, or period covered by, each financial statement
comprising the financial statements.

Examples of Auditor’s Opinion

1. When expressing an unmodified opinion on financial statements prepared in

accordance with a fair presentation framework;

a. In our opinion, the accompanying financial statements present fairly, in all

material respects, […] in accordance with [the applicable financial reporting
framework]; or
b. In our opinion, the accompanying financial statements give a true and fair
view of […] in accordance with [the applicable financial reporting framework].
2. When expressing an unmodified opinion on financial statements prepared in
accordance with a compliance framework,

c. accompanying financial statements are prepared, in all material respects, in

accordance with [the applicable financial reporting framework].

 Basis for Opinion

The auditor’s report shall include a section, directly following the Opinion section, with
the heading “Basis for Opinion”. This section shall include;

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 a) States that the audit was conducted in accordance with Sri Lanka Auditing
Standards;
b) Refers to the section of the auditor’s report that describes the auditor’s
responsibilities under the SLAuSs;
c) Includes a statement that the auditor is independent of the entity in accordance
with the relevant ethical requirements relating to the audit, and has fulfilled the
auditor’s other ethical responsibilities in accordance with these requirements.
The statement shall identify the jurisdiction of origin of the relevant ethical
requirements or refer to the Code of Ethics for Professional Accountants (CA Sri
Lanka Code); and
d) States whether the auditor believes that the audit evidence the auditor has
obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.
 Going Concern
Where applicable, the auditor shall report in accordance with SLAuS 570

 Key Audit Matters

a) For audits of complete sets of general purpose financial statements of listed
entities, the auditor shall communicate key audit matters in the auditor’s report
in accordance with SLAuS 701.
b) When the auditor is otherwise required by law or regulation or decides to
communicate key audit matters in the auditor’s report, the auditor shall do so in
accordance with SLAuS 701.
 Other Information
Where applicable, the auditor shall report in accordance with SLAuS 720
 Responsibilities for the Financial Statements
The auditor’s report shall include a section with a heading “Responsibilities of
Management for the Financial Statements.” This section of the auditor’s report shall
describe management’s responsibility for:
(a) Preparing the financial statements in accordance with the applicable financial
reporting framework, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; and
(b) Assessing the entity’s ability to continue as a going concern and whether the use
of the going concern basis of accounting is appropriate as well as disclosing, if
applicable, matters relating to going concern. The explanation of management’s
responsibility for this assessment shall include a description of when the use of
the going concern basis of accounting is appropriate.

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  Auditor’s Responsibilities for the Audit of the Financial Statements
This section of the auditor’s report shall:
(a) State that the objectives of the auditor are to:
(i) Obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error;
and
(ii) Issue an auditor’s report that includes the auditor’s opinion.

(b) State that reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with SLAuSs will always detect a material
misstatement when it exists; and
(c) State that misstatements can arise from fraud or error, and either:
(i) Describe that they are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements; or
(ii) Provide a definition or description of materiality in accordance with the
applicable financial reporting framework.
(d) Additional information;
(i) State that, as part of an audit in accordance with SLAuSs, the auditor exercises
professional judgment and maintains professional skepticism throughout the
audit
(ii) Auditors responsibilities are to identify and assess the risks of material
misstatement of the financial statements, whether due to fraud or error; to
design and perform audit procedures responsive to those risks; and to obtain
audit evidence that is sufficient and appropriate to provide a basis for the
auditor’s opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
(iii) To obtain an understanding of internal control relevant to the audit in order
to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. In circumstances when the auditor also has a responsibility
to express an opinion on the effectiveness of internal control in conjunction
with the audit of the financial statements, the auditor shall omit the phrase
that the auditor’s consideration of internal control is not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control.
(iv) To evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by

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 management.
(v) To conclude on the appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the entity’s ability to continue as a going concern. If the
auditor concludes that a material uncertainty exists, the auditor is required
to draw attention in the auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify the
opinion. The auditor’s conclusions are based on the audit evidence obtained
up to the date of the auditor’s report. However, future events or conditions
may cause an entity to cease to continue as a going concern.
(vi) When the financial statements are prepared in accordance with a fair
presentation framework, to evaluate the overall presentation, structure and
content of the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
 Other Reporting Responsibilities
If the auditor addresses other reporting responsibilities in the auditor’s report on the
financial statements that are in addition to the auditor’s responsibilities under the
SLAuSs, these other reporting responsibilities shall be addressed in a separate section in
the auditor’s report with a heading titled “Report on Other Legal and Regulatory
Requirements” or otherwise as appropriate to the content of the section.
If the auditor’s report contains a separate section that addresses other reporting
responsibilities, those shall be included under a section with a heading “Report on the
Audit of the Financial Statements.” The “Report on Other Legal and Regulatory
Requirements” shall follow the “Report on the Audit of the Financial Statements.”
 CA Sri Lanka Membership Number of the Engagement Partner
The CA Sri Lanka membership number of the engagement partner shall be included in
the auditor’s report on financial statements of listed entities unless, in rare
circumstances, such disclosure is reasonably expected to lead to a significant personal
security threat.

 Signature of the Auditor

The auditor’s report shall be signed.
The auditor’s signature is either in the name of the audit firm, the personal name of
the auditor or both, as appropriate for the particular jurisdiction.
In some cases, law or regulation may allow for the use of electronic signatures in the
auditor’s report.

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 Auditor’s Address
The auditor’s report shall name the location in the jurisdiction where the auditor
practices.
 Date of the Auditor’s Report
The date of the auditor’s report informs the user of the auditor’s report that the
auditor has considered the effect of events and transactions of which the auditor
became aware and that occurred up to that date. The auditor’s responsibility for
events and transactions after the date of the auditor’s report is addressed in SLAuS
560.

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The auditor shall evaluate whether the financial statements
adequately refer to or describe the applicable financial reporting
framework. (Ref: Para. A10– A15)