The Auditor’s Report on Financial

Statements
 Auditor’s Report on Financial Statements

Emphasis of Key Audit Matters

Unmodified Modification to and Other Report on Special Purpose
Report the Opinion Matters & Other Group FS FS
Matter Paragraph Information
PHILIPPINE STANDARD ON
AUDITING 700 (REVISED)
FORMING AN OPINION AND REPORTING ON
FINANCIAL STATEMENTS
Objectives of the auditor

 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.
General Purpose Financial
Statements
1. Compliance Framework
2. Fair Presentation Framework
(i) Acknowledges explicitly or
implicitly that, to achieve fair
presentation of the financial
statements, it may be necessary
for management to provide
disclosures beyond those
specifically required by the
framework;
(ii) Acknowledges explicitly that it
may be necessary for management
to depart from a requirement of
the framework to achieve fair
presentation of the financial
statements. Such departures are
expected to be necessary only in
extremely rare circumstances.
The auditor must form judgment as to whether:
1. The accounting policies selected and applied are consistent with the
financial reporting framework and are appropriate in the
circumstances;
2. The accounting estimates made by management are reasonable in the
circumstances;
3. The information presented in the financial statements including
accounting policies, is relevant, reliable, comparable and
understandable; and
4. The financial statements provide sufficient disclosures to enable users
to understand the effects of material transactions and events conveyed
in the financial statements
UNMODIFIED REPORT
UNMODIFIED REPORT
- The unmodified report is issued when the
auditor has gathered sufficient evidence, the
audit has been performed in accordance with
GAAS, and the financial statements conform to
GAAP.
UNMODIFIED OPINION
- The auditor concludes that the financial
statements of a given entity are presented
fairly, in all material respects, in accordance
with GAAP.
WHY IS IT IMPORTANT FOR FINANCIAL
STATEMENTS TO RECEIVE AN
UNMODIFIED AUDITOR’S OPINION?
- Unqualified opinion shows that the
financial statements reflect a "true and fair
view". It is important to get this designation in
order to get the trust of users of financial
statements such as creditors and investors.
BASIC ELEMENTS OF THE UNMODIFIED
REPORT
- PSA 700 sets out the following requirements
relating to the elements of the unmodified
report.
This section shall have the heading “Opinion” and
shall:
a) identify the name of the entity whose financial
statements have been audited;
b) state that the financial statements have been
audited;
c) identify the title of each of the financial
statements audited including the date and period
covered by the financial statements; and
d) refer to the summary of significant accounting
policies and explanatory notes.
This shall be presented immediately after the Opinion
section and shall:

a) state that the audit was conducted in accordance with

the Philippine Standards on Auditing;
b) refer to the section of the auditor’s report that
describes the auditor’s responsibilities under the PSAs;
c) include a statement that the auditor is independent
of the entity and has fulfilled the auditor’s ethical
responsibilities; and
d) state 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.
This section shall describe:

a) management’s responsibility for the preparation

and fair presentation of the financial statements in
accordance with the financial reporting framework
b) assessing the entity’s ability to continue as a going
concern
c) the responsibility of those charged with governance
for overseeing the financial reporting process.
The auditor’s report shall include a section
with a heading “Auditor’s Responsibilities
for the Audit of the Financial Statements”
and this shall:

a) State that the objectives of the auditor

are to:
 Obtain reasonable assurance
 Issue a report
b.) State that the reasonable assurance is a
high level of assurance but is not a
guarantee that an audit conducted in
accordance with PSAs will always detect a
material misstatement when it exists; and

c.) State that misstatement can arise from

fraud and error
d.) State that, as part of the audit in accordance with
PSAs, the auditor exercises professional judgment and
maintain professional skepticism throughout the audit;
and

e.) Describe an audit by stating that the auditor’s

responsibilities are:

 To identify and assess the risks of material

misstatement of the FS
 To obtain an understanding of internal control
 To evaluate the appropriateness of the accounting
policies used
 To conclude on the appropriateness of management’s
use of the going concern
 To evaluate the fair presentation of the fs
f.) State that the auditor communicates with
those charged with governance tha planned
scope and timing of the audit and significant
audit findings including any significant
deficiencies in internal control identified
during the audit.
MODIFICATION TO THE
OPINION
 Modification to the Opinion

Material Misstatement Scope Limitation

Material but Material and Material but Material and

not Pervasive Pervasive not Pervasive Pervasive

Qualified Adverse Qualified Disclaimer of

Opinion Opinion Opinion Opinion
Material Misstatements
1. Inappropriate accounting policy selected.
2. Misapplication of selected accounting policy.
3. Inappropriate or inadequate disclosure.
Scope Limitation
1. Unable to perform necessary audit procedures.
2. Unable to obtain sufficient appropriate evidence about an
assertion.
• Circumstance Imposed Scope
Limitation
1. Circumstances beyond the control of the entity.
2. Circumstances relating to the nature or timing of
the auditor’s work.

-Auditor may perform alternative procedures.

• Management Scope Limitation

-Auditor should request the management to remove
the limitation.
Materiality and Pervasiveness
Consideration

Material but Material and

not Pervasive Pervasive

Qualified Adverse
Opinion Opinion
Basis for Modification Paragraph

Modified Opinion
- Separate paragraph in the auditor’s report that provides
a description of the matter giving rise to the
modification.
- Placed immediately before the opinion paragraph.
- Appropriate heading such as “Basis for Qualified
Opinion”, “Basis for Adverse Opinion”, or “Basis for
Disclaimer of Opinion”.
 Material Misstatement Scope Limitation

Explanation for
Description Quantification the reason of
inability
Modification of the Auditor’s Report
Opinion
HEADING

Section
1. Qualified Opinion
2. Adverse Opinion
3. Disclaimer of Opinion

MM: Qualified Opinion SL: Qualified Opinion

“except for the possible

“except for the effects of
effects of the matter
the matter described in the
described in the Basis for
Basis for Qualified Opinion
Qualified Opinion
paragraph, the financial
paragraph, the financial
statements present fairly…”
statements present fairly…”
 Adverse Opinion Disclaimer of Opinion

“because of the significance of the

“because of the
matter described in the Basis for
significance of the matter
Disclaimer of Opinion paragraph,
described in the Basis for
the auditor has not been able to
Adverse Opinion
obtain sufficient appropriate
paragraph, the financial
audit evidence to provide a basis
statements do not present
for an audit opinion; and
fairly…”
accordingly, the auditor does not
express an opinion on the
financial statements.”
Auditor’s
Responsibility

Qualified/Adverse
Disclaimer of Opinion
Opinion
“Our responsibility is to express an
“Auditor believes that the opinion on the financial statements
audit evidence the auditor based on conducting the audit in
has obtained is sufficient accordance with the Philippine
and appropriate to Standards on Auditing. Because of
provide a basis for the the matter described in the Basis
auditor’s qualified or for Disclaimer of Opinion
adverse opinion.” paragraph, however, we were not
able to obtain sufficient appropriate
audit evidence to provide a basis
for an audit opinion.”
Piecemeal Opinion
-is an unmodified opinion expressed on one or more components
of the financial statements while expressing an adverse or
disclaimer of opinion on the financial statements taken as a
whole.
Going Concern

1. Going concern Assumption is Appropriate

and No Material Uncertainty Exists
2. Going Concern Appropriate – Material
Uncertainty Exists
3. Going Concern Assumption Inappropriate
ONS
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