SA 700 (R)

Forming an Opinion and Reporting on Financial Statements

(Effective From 1 April 2018)

SCOPE OF  The auditor’s responsibility to form an opinion on the financial statements.

THIS SA
 The form and content of the auditor’s report issued as a result of an audit of financial
statements.
 This SA applies to an audit of a complete set of general purpose financial statements and is
written in that context.
OBJECTIVES
 To form an opinion on the financial statements based on an evaluation of the conclusions
drawn from the audit evidence obtained; and
 To express clearly that opinion through a written report.
DEFINITIONS  General purpose financial statements – Financial statements prepared in accordance with a
general purpose framework.
 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.
 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.
REQUIREM-
 The auditor shall form an opinion on whether the financial statements are prepared, in all
ENTS 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, whether due to fraud or error.
 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.
Auditor In particular, the auditor shall evaluate whether, in view of the requirements of the
evaluation in applicable financial reporting framework:
respect of  The financial statements adequately disclose the significant accounting
applicable policies selected and applied;
financial
reporting  The accounting policies selected and applied are consistent with the
framework applicable financial reporting framework and are appropriate;
 The accounting estimates made by management are reasonable;
 The information presented in the financial statements is relevant, reliable,
comparable, and understandable;
 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
 The terminology used in the financial statements, including the title of
each financial statement, is appropriate.

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FORM OF The auditor shall express an unmodified opinion when the auditor concludes that the financial
OPINION statements are prepared, in all material respects, in accordance with the applicable financial
reporting framework.

If the auditor concludes that, based on the audit evidence obtained,

 the financial statements as a whole are not free from material misstatement; or
 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).

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).

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.
AUDITOR’S Auditor’s  Title that report of an independent auditor.
REPORT Report for
Audits  Addressee
Conducted in  Auditor’s Opinion
Accordance
with The Opinion section of the auditor’s report shall also:
Standards on (a) Identify the entity whose financial statements have been audited;
Auditing
(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.
 Basis for Opinion
(a) States that the audit was conducted in accordance with Standards on
Auditing;
(b) Refers to the section of the auditor’s report that describes the auditor’s
responsibilities under the SAs;
(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

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 2

 with these requirements. The statement shall refer to the Code of Ethics
issued by ICAI.
(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
 Key audit matter
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 SA 701.
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 SA 701.
 Responsibilities for the Financial Statements:- Management/TCWG
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 identify those
responsible for the oversight of the financial reporting process, when those
responsible for such oversight are different from those who fulfill the
responsibilities
 Auditor’s Responsibilities for the Audit of the Financial Statements
Location of the description of the auditor’s responsibilities for the audit of the
financial statements
The description of the auditor’s responsibilities for the audit of the financial
statements required by paragraphs 38–39 shall be included:
(a) Within the body of the auditor’s report;
(b) Within an appendix to the auditor’s report, in which case the auditor’s
report shall include a reference to the location of the appendix; or
(c) By a specific reference within the auditor’s report to the location of such a
description on a website of an appropriate authority, where law, regulation
or the auditing standards expressly permit the auditor to do so.
When the auditor refers to a description of the auditor’s responsibilities on a
website of an appropriate authority, the auditor shall determine that such
description addresses, and is not inconsistent with, the requirements in this SA.
 Other Reporting Responsibilities
Other reporting responsibilities in the auditor’s report on the financial
statements that are in addition to the auditor’s responsibilities under the
SAs.
If other reporting responsibilities are presented in the same section as the

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 related report elements required by the SAs, the auditor’s report shall
clearly differentiate the other reporting responsibilities from the reporting
that is required by the SAs.
If the auditor’s report contains a separate section that addresses other
reporting responsibilities, 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.”
 Signature of the Auditor-Name/Member ship no.
 Place of Signature
 Date of the Auditor’s Report
Auditor’s If the auditor is required by law or regulation applicable to the entity to use a
Report specific layout, or wording of the auditor’s report, the auditor’s report shall refer to
Prescribed Standards on Auditing only if the auditor’s report includes, at a minimum, each of
by Law or the following elements:
Regulation
 A title.
 An addressee, as required by the circumstances of the engagement.
 An Opinion section containing an expression of opinion on the financial
statements and a reference to the applicable financial reporting framework
used to prepare the financial statements
 An identification of the entity’s financial statements that have been audited.
 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 refer to the Code of Ethics issued by ICAI.
 Where applicable, a section that addresses, and is not inconsistent with,
the reporting requirements of SA 570 (Revised).
 Where applicable, a Basis for Qualified (or Adverse) Opinion section that
addresses, and is not inconsistent with, the reporting requirements in SA 570
(Revised).
 Where applicable, a section that includes the information required by SA 701, or
prescribed by law or regulation and that addresses, and is not inconsistent with,
the reporting requirements in that SA.
 A description of management’s
 A reference to Standards on Auditing and the law or regulation, description of
the auditor’s responsibilities for an audit of the financial statements.
 The auditor’s signature.
 The Place of signature
 The date of the auditor’s report.
Auditor’s An auditor may be required to conduct an audit in accordance with, in addition to
Report for the Standards on Auditing issued by ICAI, the International Standards on Auditing
Audits or auditing standards of any other jurisdiction. If this is the case, the auditor‟ s
Conducted in report may refer to Standards on Auditing in addition to the International
Accordance Standards on Auditing or auditing standards of such other jurisdiction, but the

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 4

 with Both auditor shall do so only if:
Standards on
 There is no conflict between the requirements in the ISAs or such auditing
Auditing standards of other jurisdiction and those in SAs that would lead the auditor
Issued by
ICAI and (i) to form a different opinion, or
International (ii) not to include an Emphasis of Matter paragraph or Other Matter
Standards paragraph that, in the particular circumstances, is required by SAs;
on Auditing
or Auditing When the auditor’s report refers to both the ISAs or the auditing standards of a
Standards of specific jurisdiction and the Standards on Auditing issued by ICAI, the auditor’s
Any Other report shall clearly identify the same including the jurisdiction of origin of the other
Jurisdiction auditing standards.
Supplementa If supplementary information that is not required by the applicable financial
ry reporting framework is presented with the audited financial statements, the
Information auditor shall evaluate whether, in the auditor’s professional judgment,
Presented supplementary information is nevertheless an integral part of the financial
with the statements due to its nature or how it is presented. When it is an integral part of
Financial the financial statements, the supplementary information shall be covered by the
Statements auditor’s opinion.
 If supplementary information that is not required by the applicable financial
reporting framework is not considered an integral part of the audited financial
statements, the auditor shall evaluate whether such supplementary
information is presented in a way that sufficiently and clearly differentiates it
from the audited financial statements.
 If this is not the case, then the auditor shall ask management to change how
the unaudited supplementary information is presented.
 If management refuses to do so,the auditor shall identify the unaudited
supplementary information and explain in the auditor’s reportthat such
supplementary information has not been audited.

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 FOR SELF READING

Auditor’s Report on Financial Statements of a Listed Entity Prepared in Accordance with a Fair Presentation
Framework

INDEPENDENT AUDITOR’S REPORT

To the Members of ABC Company Limited

Report on the Audit of the Standalone Financial Statements

Opinion
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the
balance sheet as at 31st March 20XX, and the statement of Profit and Loss, (statement of changes in equity) and
statement of cash flows for the year then ended, and notes tothe financial statements, including a summary of
significant accounting policies and other explanatory information [in which are included the Returns for the year
ended on that date audited by the branchauditors of the Company’s branches located at (location of branches)].

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid
standalone financial statements give the information required by the Act in the manner so required and give a true
and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the
Company as at March 31, 20XX, and profit/loss, (changes in equity)4 and its cash flows for the year ended on that
date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section143(10) of the
Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the
Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India
together with the ethical requirements that are relevant to our audit of the financial statements under the
provisions of the Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
[Description of each key audit matter in accordance with SA 701.]

Management’s Responsibility for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in section 134(5) of theCompanies Act, 2013
(“the Act”) with respect to the preparation of these standalone financialstatements that give a true and fair
view of the financial position, financial performance, (changes in equity) and cash flows of the Company in
accordance with the accounting principles generally accepted in India, including the accounting Standards specified
under section 133 of the Act. Thisresponsibility also includes maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and
detecting frauds and other irregularities; selection and application of appropriate implementation and maintenance
of accounting policies; making judgments and estimates that are reasonable and prudent; and design,
implementation and maintenance of adequate internal financial controls, that were operating effectively for
ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 6

the financial statement that give a true and fair view and are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, management is responsible for assessing the Company ’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company’s financial reportingprocess.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a wholeare free from
material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accorda nce with
SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken onthe basis of these financial statements

Other Matter
We did not audit the financial statements/ information of ………………. (number) branches included inthe stand
alone financial statements of the Company whose financial statements/financial informationreflect total assets of
Rs. ……………….. as at 31st March 20XX and the total revenue of `………………. for the year ended on that
date, as considered in the standalone financial statements/information of these branches have been audited by
the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts
and disclosures included in respect of branches, is based solely on the report of such branch auditors.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”), issued by the Central Government of
India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the Annexure a statement on
the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

As required by Section 143(3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and
belief were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it
appears from our examination of those books [and proper returns adequate for the purposes of our audit
have been received from the branches not visited by us.]
(c) [The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act
by branch auditors have been sent to us and have been properly dealt with by us in preparing this report.]
(d) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report
are in agreement with the books of account [and with the returns received from the branches not visited by
us].
(e) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards
specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.
(f) On the basis of the written representations received from the directors as on 31st March, 20XXtaken on
record by the Board of Directors, none of the directors is disqualified as on 31st March,20XX from being
appointed as a director in terms of Section 164 (2) of the Act.
(g) With respect to the adequacy of the internal financial controls over financial reporting of theCompany and
the operating effectiveness of such controls, refer to our separate Report in“Annexure A”.

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(h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule11 of the
Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according
to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its financial
statements – Refer Note XX to the financial statements; [or the Companydoes not have any pending
litigations which would impact its financial position]
ii. The Company has made provision, as required under the applicable law or accounting standards, for
material foreseeable losses, if any, on long-term contracts includingderivative contracts – Refer
Note XX to the financial statements; [or the Company did nothave any long-term contracts including
derivative contracts for which there were any material foreseeable losses.]
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor
Education and Protection Fund by the Company {or, following are the instances of delay in
transferring amounts, required to be transferred, to the Investor Education and Protection Fund by
the Company or there were no amounts which were required to be transferred to the Investor
Education and Protection Fund by the Company}.

For XYZ & Co

Chartered Accountants
(Firm’s Registration No.)

Signature
(Name of the Member Signing the Audit Report) (Designation)
(Membership No. XXXXX)
Place of Signature:
Date:

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 8

 SA 701
Communicating Key Audit Matters in the Independent
Auditor’s Report
(Effective From 1 April 2018)

SCOPE OF THIS
 The auditor’s responsibility to communicate key audit matters in the auditor’s report.
SA
 It is intended to address both the auditor’s judgment as to what to communicate in the
auditor’s report and the form and content of such communication.
 The communication of key audit matters in the auditor’s report may also provide intended
users a basis to further engage with management and those charged with governance
about certain matters relating to the entity, the audited financial statements, or the audit
that was performed.
 The purpose of communicating key audit matters is to enhance the communicative value of
the auditor’s report by providing greater transparency about the audit that was performed.
 Communicating key audit matters provides additional information to intended users of the
financial statements (“intended users”) to assist them in understanding those matters that, in
the auditor’s professional judgment, were of most significance in the audit of the financial
statements of the current period.
 Communicating key audit matters may also assist intended users in understanding the entity
and areas of significant management judgment in the audited financial statements.
 Communicating key audit matters in the auditor’s report is in the context of the auditor
having formed an opinion on the financial statements as a whole. Communicating key audit
matters in the auditor’s report is not:
(a) A substitute for disclosures in the financial statements that the applicable financial
reporting framework requires management to make, or that are otherwise necessary to
achieve fair presentation;
(b) A substitute for the auditor expressing a modified opinion when required by the
circumstances of a specific audit engagement in accordance with SA 705 (Revised);
(c) A substitute for reporting in accordance with SA 570 (Revised) when a material
uncertainty exists relating to events or conditions that may cast significant doubt on an
entity’s ability to continue as a going concern; or
(d) A separate opinion on individual matters.
 This SA applies to audits of complete sets of general purpose financial statements of listed
entities and circumstances when the auditor otherwise decides to communicate key audit
matters in the auditor’s report. This SA also applies when the auditor is required by law or
regulation to communicate key audit matters in the auditor’s report. However, SA 705
(Revised) prohibits the auditor from communicating key audit matters whe n the auditor
disclaims an opinion on the financial statements, unless such reporting is required by law or
regulation.
OBJECTIVES The objectives of the auditor are to determine key audit matters and, having formed an opinion
on the financial statements, communicate those matters by describing them in the auditor’s
report.
DEFINITION For purposes of the SAs, the following term has the meaning attributed below:
Key audit matters— Those matters that, in the auditor’s professional judgment, were of most

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 significance in the audit of the financial statements of the current period. Key audit matters are
selected from matters communicated with those charged with governance.
REQUIREMENTS Determining The auditor shall determine, from the matters communicated with those
Key Audit charged with governance, those matters that required significant auditor
Matters attention in performing the audit. In making this determination, the auditor
shall take into account the following:
(a) Areas of higher assessed risk of material misstatement, or significant risks
identified in accordance with SA 315.5
(b) Significant auditor judgments relating to areas in the financial statements
that involved significant management judgment, including accounting
estimates that have been identified as having high estimation uncertainty.
(c) The effect on the audit of significant events or transactions that occurred
during the period.
The auditor shall determine which of the matters determined in
accordance with paragraph were of most significance in the audit of the
financial statements of the current period and therefore are the key audit
matters.
Communicating The auditor shall describe each key audit matter, using an appropriate
Key Audit subheading, in a separate section of the auditor’s report under the heading
Matters “Key Audit Matters,”
 The introductory language in this section of the auditor’s report shall
state that:
(a) Key audit matters are those matters that, in the auditor’s professional
judgment, were of most significance in the audit of the financial
statements [of the current period]; and
(b) These matters were addressed in the context of the audit of the
financial statements as a whole, and in forming the auditor’s opinion
thereon, and the auditor does notprovide a separate opinion on these
matters.
 Key Audit Matters Not a Substitute for Expressing a Modified Opinion
The auditor shall not communicate a matter in the Key Audit Matters
section of the auditor’s report when the auditor would be required to
modify the opinion in accordance with SA 705 (Revised) as a result of the
matter.

 Descriptions of Individual Key Audit Matters

The description of each key audit matter in the Key Audit Matters section
of the auditor’s report shall include a reference to the related
disclosure(s), if any, in the financial statements and shall address:
(a) Why the matter was considered to be one of most significance in the
audit and therefore determined to be a key audit matter; and
(b) How the matter was addressed in the audit.

 Circumstances in Which a Matter Determined to Be a Key Audit Matter

Is NotCommunicated in the Auditor’s Report
The auditor shall describe each key audit matter in the auditor’s report
unless:
(a) Law or regulation precludes public disclosure about the matter; or
(b) In extremely rare circumstances, the auditor determines that the

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 10

 matter should not be communicated in the auditor’s report because
the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication. This
shall not apply if the entity has publicly disclosed information about
the matter.

 Interaction between Descriptions of Key Audit Matters and Other

Elements Required to BeIncluded in the Auditor’s Report
A matter giving rise to a modified opinion in accordance with SA 705
(Revised), or a material uncertainty related to events or conditions that
may cast significant doubt on the entity’s ability to continue as a going
concern in accordance with SA 570 (Revised), are by their nature key audit
matters. However, in such circumstances, these matters shall not be
described in the Key Audit Matters section of the auditor’s report Rather,
the auditor shall:
(a) Report on these matter(s) in accordance with the applicable SA(s);
and
(b) Include a reference to the Basis for Qualified (Adverse) Opinion or
the Material Uncertainty Related to Going Concern section(s) in the
Key Audit Matters section.

 Form and Content of the Key Audit Matters Section in Other

Circumstances
If the auditor determines, depending on the facts and circumstances of the
entity and the audit, that there are no key audit matters to communicate
or that the only key audit matters communicated are those matters
addressed by the auditor shall include a statement to this effect in a
separate section of the auditor’s report under the heading “Key Audit
Matters.”
Communication The auditor shall communicate with those charged with governance:
with Those
Charged with  Those matters the auditor has determined to be the key audit matters; or
Governance  If applicable, depending on the facts and circumstances of the entity and
the audit, the auditor’s determination that there are no key audit matters
to communicate in the auditor’s report.
Documentation The auditor shall include in the audit documentation:
 The matters that required significant auditor attention and the rationale
for the auditor’s determination as to whether or not each of these matters
is a key audit matter
 Where applicable, the rationale for the auditor’s determination that there
are no key audit matters to communicate in the auditor’s report or that
the only key audit matters to communicate are those matters addressed
already and
 Where applicable, the rationale for the auditor’s determination not to
communicate in the auditor’s report a matter determined to be a key audit
matter.

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 SA 705(R)
Modifications to the Opinion in the Independent
Auditor’s Report
(Effective From 1 April 2018)

INTRODUCTION  This Standard on Auditing (SA) deals with the auditor’s responsibility to issue an
SCOPE OF THIS
appropriate report in circumstances when, in forming an opinion in accordance with SA 700
SA (Revised),1 the auditor concludes that a modification to the auditor’s opinion on the
financial statements is necessary.
 This SA also deals with how the form and content of the auditor’s report is affected when
the auditor expresses a modified opinion.
 In all cases, the reporting requirements in SA 700 (Revised) apply, and are not repeated in
this SA unless they are explicitly addressed or amended by the requirements of this SA.
TYPES OF This SA establishes three types of modified opinions, namely, a qualified opinion, an adverse
MODIFIED opinion, and a disclaimer of opinion. The decision regarding which type of modified opinion is
OPINIONS appropriate depends upon:
 The nature of the matter giving rise to the modification, that is, whether the financial
statements are materially misstated or, in the case of an inability to obtain sufficient
appropriate audit evidence, may be materially misstated; and
 The auditor’s judgment about the pervasiveness of the effects or possible effects of the
matter on the financial statements.
OBJECTIVE The objective of the auditor is to express clearly an appropriately modified opinion on the
financial statements that is necessary when:
 The auditor concludes, based on the audit evidence obtained, that the financial
statements as a whole are not free from material misstatement; or
 The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement.
DEFINITIONS For purposes of the SAs, the following terms have the meanings attributed below:
 Pervasive – A term used, in the context of misstatements, to describe the effects on the
financial statements of misstatements or the possible effects on the financial statements
of misstatements, if any, that are undetected due to an inability to obtain sufficient
appropriate audit evidence. Pervasive effects on the financial statements are those that, in
the auditor’s judgment:
(i) Are not confined to specific elements, accounts or items of the financial
statements;
(ii) If so confined, represent or could represent a substantial proportion of the
financial statements; or
(iii) In relation to disclosures, are fundamental to users’ understanding of the financial
statements.
 Modified opinion – A qualified opinion, an adverse opinion or a disclaimer of opinion on
the financial statements.
REQUIREMENTS Circumstances The auditor shall modify the opinion in the auditor’s report when:
When a

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 12

 Modification to  The auditor concludes that, based on the audit evidence obtained,
the Auditor’s
Opinion is the financial statements as a whole are not free from material
Required misstatement; or
 The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material
misstatement.
Determining
 Qualified Opinion
the Type of
Modification to The auditor shall express a qualified opinion when:
the Auditor’s The auditor, having obtained sufficient appropriate audit evidence,
Opinion concludes that misstatements, individually or in the aggregate, are
material, but not pervasive, to the financial statements; or
The auditor is unable to obtain sufficient appropriate audit evidence
on which to base the opinion, but the auditor concludes that the
possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive.

 Adverse Opinion
The auditor shall express an adverse opinion when the auditor, having
obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are both material and
pervasive to the financial statements.

 Disclaimer of Opinion
The auditor shall disclaim an opinion when the auditor is unable to
obtain sufficient appropriate audit evidence on which to base the
opinion, and the auditor concludes that the possible effects on the
financial statements of undetected misstatements, if any, could be
both material and pervasive.
The auditor shall disclaim an opinion when, in extremely rare
circumstances involving multiple uncertainties, the auditor
concludes that, notwithstanding having obtained sufficient
appropriate audit evidence regarding each of the individual
uncertainties, it is not possible to form an opinion on the financial
statements due to the potential interaction of the uncertainties and
their possible cumulative effect on the financial statements.
Consequence  If the auditor concludes that the possible effects on the financial
of an Inability statements of undetected misstatements, if any, could be material but
to Obtain
not pervasive, the auditor shall qualify the opinion; or
Sufficient
Appropriate  If the auditor concludes that the possible effects on the financial
Audit Evidence statements of undetected misstatements, if any, could be both
Due to a material and pervasive so that a qualification of the opinion would be
Management- inadequate to communicate the gravity of the situation, the auditor
Imposed shall:
Limitation after Withdraw from the audit, where practicable and possible under
the Auditor Has applicable law or regulation; or
Accepted the

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 Engagement
If withdrawal from the audit before issuing the auditor’s report
is not practicable or possible, disclaim an opinion on the financial
statements.
Other When the auditor considers it necessary to express an adverse opinion or
Considerations disclaim an opinion on the financial statements as a whole, the auditor’s
Relating to an report shall not also include an unmodified opinion with respect to the
Adverse same financial reporting framework on a single financial statement or
Opinion or one or more specific elements, accounts or items of a financial statement.
Disclaimer of To include such an unmodified opinion in the same report3 in these
Opinion circumstances would contradict the auditor’s adverse opinion or
disclaimer of opinion on the financial statements as a whole.
Form and Content Auditor’s When the auditor modifies the audit opinion, the auditor shall use the
of the Auditor’s Opinion heading “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,”
Report When the as appropriate, for the Opinion section.
Opinion is Qualified When the auditor expresses a qualified opinion due to a
Modified Opinion material misstatement in the financial statements, the
auditor shall state that, in the auditor’s opinion, except for
the effects of the matter(s) described in the Basis for
Qualified Opinion section:
 When reporting in accordance with a fair presentation
framework, the accompanying financial statements
present fairly, in all material respects (or give a true
and fair view of) […] in accordance with [the applicable
financial reporting framework]; or
 When reporting in accordance with a compliance
framework, the accompanying 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.
Adverse When the auditor expresses an adverse opinion, the auditor
Opinion shall state that, in the auditor’s opinion, because of the
significance of the matter(s) described in the Basis for
Adverse Opinion section:
 When reporting in accordance with a fair presentation
framework, the accompanying financial statements do
not present fairly (or give a true and fair view of) […] in
accordance with [the applicable financial reporting
framework]; or
 When reporting in accordance with a compliance
framework, the accompanying financial statements
have not been prepared, in all material respects, in
accordance with [the applicable financial reporting
framework].

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 14

 Disclaimer of When the auditor disclaims an opinion due to an
Opinion inability to obtain sufficient appropriate audit evidence,
the auditor shall:
 State that the auditor does not express an opinion on
the accompanying financial statements;
 State that, because of the significance of the matter(s)
described in the Basis for Disclaimer of Opinion
section, the auditor has not been able to obtain
sufficient appropriate audit evidence to provide a basis
for an audit opinion on the financial statements; and
 Amend the statement required by paragraph 24(b)
of SA 700 (Revised), which indicates that the financial
statements have been audited, to state that the
auditor was engaged to audit the financial statements.
Basis for When the auditor modifies the opinion on the financial statements, the
Opinion auditor shall, in addition to the specific elements required by SA 700
(Revised):
 Amend the heading “Basis for Opinion” required by SA 700
(Revised) to “Basis for Qualified Opinion,” “Basis for Adverse Opinion,”
or “Basis for Disclaimer of Opinion,” as appropriate; and
 Within this section, include a description of the matter giving rise to the
modification.
 If there is a material misstatement of the financial statements that
relates to specific amounts in the financial statements the auditor shall
include in the Basis for Opinion section a description and quantification
of the financial effects of the misstatement, unless impracticable.
 If there is a material misstatement of the financial statements that
relates to narrative disclosures, the auditor shall include in the Basis for
Opinion section an explanation of how the disclosures are misstated.
 If there is a material misstatement of the financial statements that
relates to the non- disclosure of information required to be disclosed,
the auditor shall:
o Discuss the non-disclosure with those charged with governance;
o Describe in the Basis for Opinion section the nature of the omitted
information; and
o Unless prohibited by law or regulation, include the omitted
disclosures, provided it is practicable to do so and the auditor has
obtained sufficient appropriate audit evidence about the omitted
information.
 If the modification results from an inability to obtain sufficient
appropriate audit evidence, the auditor shall include in the Basis for
Opinion section the reasons for that inability.
 When the auditor expresses a qualified or adverse opinion, the auditor
shall amend the statement about whether the audit evidence obtained
is sufficient and appropriate to provide a basis for the auditor’s opinion.

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  When the auditor disclaims an opinion on the financial statements, the
auditor’s report shall not include the elements SA 700 (Revised). Those
elements are:
o A reference to the section of the auditor’s report where the
auditor’s responsibilities are described; and
o A statement about whether the audit evidence obtained is
sufficient and appropriate to provide a basis for the auditor’s
opinion.

 Even if the auditor has expressed an adverse opinion or disclaimed an

opinion on the financial statements, the auditor shall describe in the
Basis for Opinion section the reasons for any other matters of which the
auditor is aware that would have required a modification to the opinion,
and the effects thereof.
Description of When the auditor disclaims an opinion on the financial statements due to an
Auditor’s inability to obtain sufficient appropriate audit evidence, the auditor shall
Responsibilities amend the description of the auditor’s responsibilities required by
for the Audit of paragraphs 38–40 of SA 700 (Revised) to include only the following: (Ref:
the Financial Para. A25)
Statements
 A statement that the auditor’s responsibility is to conduct an audit of
When the
the entity’s financial statements in accordance with Standards on
Auditor Auditing and to issue an auditor’s report;
Disclaims an
Opinion on the  A statement that, however, because of the matter(s) described in the
Financial Basis for Disclaimer of Opinion section, the auditor was not able to
Statements obtain sufficient appropriate audit evidence to provide a basis for an
audit opinion on the financial statements; and
 The statement about auditor independence and other ethical
responsibilities required by SA 700 (Revised).
Considerations Unless required by law or regulation, when the auditor disclaims an opinion
When the on the financial statements, the auditor’s report shall not include a Key
Auditor Audit Matters section in accordance with SA 701.
Disclaims an
Opinion on the
Financial
Statements
COMMUNICATION When the auditor expects to modify the opinion in the auditor’s report, the auditor shall
WITH THOSE communicate with those charged with governance the circumstances that led to the expected
CHARGED WITH modification and the wording of the modification.
GOVERNANCE Auditor’s Judgment about the Pervasiveness of the
Effects or Possible Effects on the Financial
Nature of Matter Giving Rise Statements
to the Modification
Material but Not Material and Pervasive
Pervasive

Financial statements Are

Qualified opinion Adverse opinion
materially misstated

Inability to obtain sufficient

Qualified opinion Disclaimer of opinion
appropriate audit evidence

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 16

 FOR SELF READING

Qualified Opinion due to a Material Misstatement of the Financial Statements

INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited

Report on the Audit of the Standalone Financial Statements

Qualified Opinion

We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the
balance sheet as at March 31, 20XX, and the statement of Profit and Loss, (statement of changes in equity)13 and the
statement of cash flows for the
year then ended, and notes to the financial statements, including a summary of significant accounting policies and
other explanatory information (in which are included the Returns for the year ended on that date audited by the
branch auditors of the Company’s branches
located at (location of branches))14.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects
of the matter described in the Basis for Qualified Opinion section of
our report, the aforesaid financial statements give a true and fair view in conformity with the

accounting principles generally accepted in India, of the state of affairs of the Company as at March 31st, 2XXX and
profit/loss, (changes in equity) and its cash flows for the year ended on that date.

Basis for Qualified Opinion

The Company’s inventories are carried in the Balance Sheet at Rs. XXX. Management has not stated the inve ntories at
the lower of cost and net realizable value but has stated them solely at cost, which constitutes a departure from the
Accounting Standards prescribed under section 133 of the Companies Act, 2013. The Company’s records indicate that,
had management stated the inventories at the lower of cost and net realizable value, an amount of Rs. xxx would have
been required to write the inventories down to their net realizable value. Accordingly, cost of sales would have been
increased by Rs. xxx, and income tax, net income and shareholders’ funds would have been reduced by Rs. xxx, Rs. xxx
and Rs. xxx, respectively.

We conducted our audit in accordance with Standards on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company
in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the
ethical requirements that are relevant to our audit of the financial statements under the provisions of the Companies
Act, 2013 and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI’s
Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our qualified opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. In addition to the matter described in the Basis for Qualified Opinion section we have determined the
matters described below to be the key audit matters to be communicated in our report.

[Description of each key audit matter in accordance with SA 701.]

Responsibilities of Management and Those Charged with Governance for the Financial Statements

[Reporting in accordance with SA 700 (Revised)]

Auditor’s Responsibilities for the Audit of the Financial Statements

[Reporting in accordance with SA 700 (Revised) ]

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Other Matter
We did not audit the financial statements/information of _________(number) branches included in the standalone
financial statements of the Company whose financial statements / financial information reflect total assets of
Rs.______ as at 31st March, 20XX and total revenues ofRs. _______ for the year ended on that date, as considered in
the standalone financialstatements. The financial statements/information of these branches have been audited by the
branch auditors whose reports have been furnished to us, and our opinion in so far as itrelates to the amounts and
disclosures included in respect of these branches, is based solely on the report of such branch auditors.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

[Reporting in accordance with SA 700 (Revised)]

For XYZ & Co

Chartered Accountants
(Firm’s Registration No.)

Signature
(Name of the Member Signing the Audit Report)
(Designation)
(Membership No. XXXXX)

Place of Signature:
Date:

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 18

 SA 706 (R)
Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report
(Effective From 1 April 2018)

INTRODUCTION  This Standard on Auditing (SA) deals with additional communication in the auditor’s report
SCOPE OF THIS when the auditor considers it necessary to:
SA (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 auditor’s responsibilities or the auditor’s report.
 SA 701establishes requirements and provides guidance when the auditor determines
key audit matters and communicates them in the auditor’s report. When the auditor
includes a Key Audit Matters section in the auditor’s report, this SA addresses the
relationship between key audit matters and any additional communication in the auditor’s
report in accordance with this SA.
 SA 570 (Revised) establishes requirements and provides guidance about communication in
the auditor’s report relating to going concern.
OBJECTIVE The objective of the auditor, having formed an opinion on the financial statements, is to draw
users’ attention, when in the auditor’s judgment it is necessary to do so, by way of clear
additional communication in the auditor’s report, to:
 A matter, although appropriately presented or disclosed in the financial statements, that is
of such importance that it is fundamental to users’ understanding of the financial
statements; or
 As appropriate, any other matter that is relevant to users’ understanding of the audit, the
auditor’s responsibilities or the auditor’s report.
DEFINITIONS For purposes of the SAs, the following terms have the meanings attributed below:
 Emphasis of Matter paragraph – A paragraph included in the auditor’s report that refers to
a matter appropriately presented or disclosed in the financial statements that, in the
auditor’s judgment, is of such importance that it is fundamental to users’ understanding of
the financial statements.
 Other Matter paragraph – A paragraph included in the auditor’s report that refers to a
matter other than those presented or disclosed in the financial statements that, in the
auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s
responsibilities or the auditor’s report.
REQUIREMENTS Emphasis of If the auditor considers it necessary to draw users’ attention to a matter
Matter presented or disclosed in the financial statements that, in the auditor’s
Paragraphs in judgment, is of such importance that it is fundamental to users’
the Auditor’s understanding of the financial statements, the auditor shall include an
Report Emphasis of Matter paragraph in the auditor’s report provided:
 The auditor would not be required to modify the opinion in accordance
with SA 705 (Revised)3 as a result of the matter; and

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  When SA 701 applies, the matter has not been determined to be a key
audit matter to be communicated in the auditor’s report.

When the auditor includes an Emphasis of Matter paragraph in the auditor’s

report, the auditor shall:
 Include the paragraph within a separate section of the auditor’s
report with an appropriate heading that includes the term “Emphasis
of Matter”;
 Include in the paragraph a clear reference to the matter being
emphasized and to where relevant disclosures that fully describe the
matter can be found in the financial statements. The paragraph shall
refer only to information presented or disclosed in the financial
statements; and
 Indicate that the auditor’s opinion is not modified in respect of the
matter emphasized.
Other Matter If the auditor considers it necessary to communicate a matter other than
Paragraphs in those that are presented or disclosed in the financial statements that, in the
the Auditor’s auditor’s judgment, is relevant to users’ understanding of the audit, the
Report auditor’s responsibilities or the auditor’s report, the auditor shall include an
Other Matter paragraph in the auditor’s report, provided:
 This is not prohibited by law or regulation; and
 When SA 701 applies, the matter has not been determined to be a key
audit matter to be communicated in the auditor’s report.
When the auditor includes an Other Matter paragraph in the auditor’s
report, the auditor shall include the paragraph within a separate section
with the heading “Other Matter,” or other appropriate heading.
COMMUNICATION If the auditor expects to include an Emphasis of Matter or an Other Matter paragraph in the
WITH THOSE auditor’s report, the auditor shall communicate with those charged with governance
CHARGED WITH regarding this expectation and the wording of this paragraph.
GOVERNANCE
APPLICATION The Relationship between Emphasis of Matter Paragraphs and Key Audit Matters in the
AND OTHER Auditor’s Report
EXPLANATORY  Key audit matters are defined in SA 701 as those matters that, in the auditor’s
MATERIAL
professional judgment, were of most significance in the audit of the financial statements of
the current period. Key audit matters are selected from matters communicated with
those charged with governance, which include significant findings from the audit of the
financial statements of the current period.
 Communicating key audit matters provides additional information to intended users of
the financial statements to assist them in understanding those matters that, in the
auditor’s professional judgment, were of most significance in the audit and may also assist
them in understanding the entity and areas of significant management judgment in the
audited financial statements.
 When SA 701 applies, the use of Emphasis of Matter paragraphs is not a substitute for a
description of individual key audit matters.
 Matters that are determined to be key audit matters in accordance with SA 701 may also
be, in the auditor’s judgment, fundamental to users’ understanding of the financial
statements. In such cases, in communicating the matter as a key audit matter in accordance

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 20

 with SA 701, the auditor may wish to highlight or draw further attention to its
relative importance. The auditor may do so by presenting the matter more prominently
than other matters in the Key Audit Matters section (e.g., as the first matter) or by
including additional information in the description of the key audit matter to indicate the
importance of the matter to users’ understanding of the financial statements.
 There may be a matter that is not determined to be a key audit matter in accordance with
SA 701 (i.e., because it did not require significant auditor attention), but which, in the
auditor’s judgment, is fundamental to users’ understanding of the financial statements
(e.g., a subsequent event). If the auditor considers it necessary to draw users’ attention to
such a matter, the matter is included in an Emphasis of Matter paragraph in the auditor’s
report in accordance with this SA.
CIRCUMSTANCES
 When a financial reporting framework prescribed by law or regulation would be
IN WHICH AN
unacceptable but for the fact that it is prescribed by law or regulation.
EMPHASIS OF
MATTER  To alert users that the financial statements are prepared in accordance with a special
PARAGRAPH MAY purpose framework.
BE NECESSARY  When facts become known to the auditor after the date of the auditor’s report and the
auditor provides a new or amended auditor’s report (i.e., subsequent events).
EXAMPLES OF
 An uncertainty relating to the future outcome of exceptional litigation or regulatory action.
CIRCUMSTANCES
WHERE THE  A significant subsequent event that occurs between the date of the financial
AUDITOR MAY statements and the date of the auditor’s report.
CONSIDER IT  Early application (where permitted) of a new accounting standard that has a material effect
NECESSARY TO on the financial statements.
INCLUDE AN
 A major catastrophe that has had, or continues to have, a significant effect on the entity’s
EMPHASIS OF
financial position.
MATTER
PARAGRAPH ARE

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 FOR SELF READING
Illustration of an Auditor’s Report that Includes a Key Audit Matters Section, an Emphasis of Matter Paragraph,
and an Other Matter Paragraph
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited

Report on the Audit of the Standalone Financial Statements

Opinion
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the
balance sheet as at March 31, 20X1, and the statement of Profit & Loss, (statement of changes in equity) and the
statement of cash flows for the year then ended, and notes to the financial statements, including a summary of
significant accounting policies and other explanatory information (in which are included the Returns for the year
ended on that date audited by the branch auditors of the Company’s brancheslocated at (location of branches))

In our opinion, and to the best of our information and according to the explanations given to us the aforesaid financial
statements, give a true and fair view, in conformity with the accounting principles generally accepted in India, of the
state of affairs of the Company as atMarch 31st, 2XXX and profit/loss, (changes in equity) and its cash flows for the
year ended onthat date.

Basis for Opinion

We conducted our audit in accordance with Standards on Auditing (SAs). Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit ofthe Financial Statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit
of the financialstatements as per the ICAI’s Code of Ethics and the provisions of the Companies Act, 2013,and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter
We draw attention to Note X of the financial statements, which describes the effects of a firein the Company’s
production facilities. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.

[Description of each key audit matter in accordance with SA 701.]

Other Matter
The financial statements of ABC Company for the year ended March 31, 20X0, were audited by another auditor who
expressed an unmodified opinion on those statements on March 31,20X1.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised)]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised)]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised)]
For XYZ & Co
Chartered Accountants

Revised 700 Series of Standards on Auditing - By CA SARTHAK JAIN 22