Completion, evaluation and concluding

Completion Procedures
Fair representation
General
 In accordance with SAAPS 2
 Determine the acceptability of the financial reporting framework applied in the preparation of a set of financial
statements- thus in RSA, IFRS or IFRS for SMEs
- Look at types, size, location and applicable regulations
 Establish whether:
- The precondition for an audit is present; and
- The effect of the financial reporting framework applied by management on the auditor’s report.
 Obtain an agreement from management regarding
- The preparation of the financial statements
- The internal control system necessary to enable the preparation of the financial statements that is free from
material misstatement due to fraud or error
- Providing the auditor with necessary access and information (ISA 210)

Subsequent events- ISA 560

Definitions
 Subsequent events
- events occurring between the date of the financial statements and the date of the auditor’s report and
- facts that become known to the auditor after the date of the auditor’s report.
 Date of the financial statements – the date of the end of the latest period covered by the financial statements,
normally the financial year-end date e.g. 30 June 0001
 Date of approval of the financial statements – the date those with the recognized authority (normally the directors)
assert that they have taken responsibility for the financial statements. (This is usually the date on which the directors
sign the financial statements- in practice, usually also the date of the auditors’ report)- within 6 months according to
companies act, within 3 months if JSE listed
 Date of the auditor’s report – the date the auditor selects to date the audit report on the financial statements. This
date can only be when the auditor has obtained sufficient, appropriate evidence, including evidence that a complete
set of financial statements have been prepared. This date cannot be before the directors have asserted that they
have taken responsibility for the financial statements.
 Date that the financial statements are issued – the date the auditor’s report and audited financial statements are
made available to third parties.
Dates of subsequent events
Events before auditor’s report date
 Must perform procedures to ensure subsequent events are
identified
 If subsequent event is identified- consider effect on AFS i.e.: the
accounting treatment of that subsequent event ‐ IAS 10 ‐
(Adjusting vs non adjusting) (LINK between Acc and Audit)
Impact on report
 Adjusting event, but management did not adjust/Non‐adjusting
event but management did not make correct disclosures- if it is
material, the audit report will be modified irrespective of the disclosure provided
- If adequately disclosed, the audit opinion will be unqualified (unmodified), but an emphasis of matter
paragraph referring to the disclosure in the annual financial statements will be added
- If not correctly disclosed, will be a factual misstatement, will be qualified or adverse
Duties (ISA 560 par. 6‐9)
(a) Understanding of any procedures management has established to ensure that subsequent events are identified.
(b) Inquiring of as to whether any subsequent events have occurred which might affect the financial statements.
(c) Reading minutes, of the meetings of the entity’s owners, management that have been held after the date of the
financial statements, and inquiring about matters discussed at any such meetings and where minutes are not
available
(d) Reading the entity’s latest subsequent interim financial statements, if any.
Additional procedures to identify subsequent events (A8)
1. Review of the minutes of meetings
2. Review of the firm’s latest available financial information- budgets, cash flow forecasts and management reports.
3. Consideration of relevant information that has come to the attention of the auditor from sources outside the entity
e.g. information gathered by the audit firm’s technical department from trade journals and other publications.
4. Enquiry and confirmation of the entity’s legal advisers concerning litigation claims and assessments.
5. General discussion and specific enquiries of management as to whether any material events have occurred after the
balance sheet date which affect the financial statements being reported on.
6. Scrutiny of the basic accounting records after the financial year end date for large payments, receipts, etc.
7. Analytical procedures.
8. Discussion with management on procedures they have carried out to identify subsequent events.
9. Consider whether written representations may be necessary covering particular subsequent events
After the auditor’s report date before statements are issued
 Auditor only has certain duties if any fact becomes known at this point that would have affected the audit report.
(ISA 560 par. 10‐13)
 The financial statements have already been signed and therefore theoretically the auditor has no further obligation
to perform audit procedures, except when information comes to his attention that is so material that that he has to
consider it and must then take action
Duties
(a) Discuss the matter with management and, where appropriate, those charged with governance;
(b) Determine whether the financial statements need amendment and, if so,
(c) Inquire how management intends to address the matter in the financial statements
If management amends the financial statements, the auditor shall:
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Unless the circumstances in paragraph 12 apply:
(i) Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new auditor’s report; and
(ii) Provide a new auditor’s report on the amended financial statements. The new auditor’s report shall not be
dated earlier than the date of approval of the amended financial statements- emphasis of matter or other
matter
Impact on report
* If management amends – New report; If management does not amend – Amend report (possibly modify opinion)
After the issue of the statements
 No responsibility for the auditor to perform any procedures to identify subsequent events.
 Auditor has certain duties if any fact becomes known at this point that would have affected the audit report. (14‐17)
 Basically the same steps as for- between auditors’ report and issue
Impact on report
 **If management amends- Review the steps taken by management to ensure that anyone in receipt of the
previously issued financial statements together with the auditor’s report thereon is informed of the situation- *
Include in new report an emphasis of matter (ISA 706) paragraph
 **Management does not amend‐ Take action to prevent reliance on the audit report.
Practical
 Must state when the event occurred, and thus what the duties for the auditor would have been
 Must discuss whether it would have been an adjusting or a non-adjusting event (in detail)
 Discuss the materiality of the event
 Then discuss impact on financial statements and/or audit report
 Discuss if there could be any effect on going concern
  **Thus, if asked for detail, must discuss accordingly with IAS 10 and IAS 37- state whether it is an adjusting event,
and also all disclosures that must be made

Going concern (ISA 570)

When an entity will not be considered a going concern
 Intends to liquidate the entity (voluntarily)
 Cease operations
 No realistic alternative but to liquidate (insolvent)

Risk assessment procedures ‐Going Concern Indicators (ISA 570 par A3)
Planning stage and throughout the audit
 Financial / operational ratios (analysis and interpretation ratios)
 Inspecting minutes of meetings
 Legal counsel – pending litigation claims or fines /penalties
Additional Procedures at completion stage
 Material uncertainty exists (ISA 570 par 16; A16):
(a) Requesting management to make its assessment of going concern if they had not yet
(b) Evaluating management’s plans for future actions in relation to its going concern assessment, whether the
outcome of these plans is likely to improve the situation and if they are feasible
(c) Where the entity has prepared a cash flow forecast, and analysis of the forecast
(i) Evaluating the reliability of the underlying data generated to prepare the forecast; and
(ii) Determining whether there is adequate support for the assumptions underlying the forecast.
(d) Considering whether any additional facts or information became available after the assessment by management
(e) Requesting written representations from management regarding they future plans
Impact on report
 In terms of ISA 570 where a “significant doubt” situation exists, and proper disclosure has been made, an additional
section headed “Material Uncertainty Related to Going Concern” must be added to the report, in which the going
concern uncertainty will be explained- thus not under key audit matters, but a separate section
 Procedures done are to identify whether the AFS should be prepared on a going concern or liquidation basis OR to
identify whether any material uncertainties relating to going concern exists even if prepared on a going concern
basis
 If identified that a material uncertainty exists, but that the going concern principle is appropriate:
- Evaluate whether adequate disclosure is made in AFS. If adequate disclosure has been made ‐ Unmodified
opinion with the Material uncertainty related to going concern paragraph separately
 If going concern basis is inappropriate:
- Adverse
Opinion (if
management
present on
going
concern basis
and auditor
disagree).
- Other
situations:
ISA 570
Appendix*
 Identifying going concern
 In ISA 560 Par A3 there are examples of events and conditions that may cast doubt on the entity’s ability to continue
as a going concern- financial, operating and other- not exhaustive, must look at all factors
 **Use all information given in question as far as possible
 Thus, state: “To determine whether the going concern basis of accounting would be appropriate, the financial,
operating and other indicators of going concern should be considered. Mitigating factors should also be
considered”
Financial
 If asked to discuss, discuss positive and negative factors
 State if they are in a net liability or net current liability position (current liabilities exceed current assets)
 Calculate important ratio’s- current ratio, quick ratio (liquidity ratios)
 A loss made during the year/accumulated losses- negative indicator
 **State all cash flow considerations- able to pay creditors, overdraft facilities- state how it will be improved
Operating
 Factors that influence future operating ability- difficult trading conditions, not being able to pay
suppliers/contractors
Other factors
 Non-compliance with regulatory or capital requirements, such as solvency and liquidity that has to be met
 Pending legal proceedings
Mitigating factors
 Discuss conditions that might ensure a future going concern- things that will reduce the effect of the above-
mentioned
 If directors hold shares, will be personally invested, and might be willing to invest further to secure its future
 If company has already been in existence for a long time, will reflect positively on the ability of the directors to keep
the entity a going concern
Additional procedures when events or conditions are identified (A 16-A17)
 Must analyse and discuss the relevant forecasts with management, e.g. if they state that they have been awarded a
new tender, must analyse whether it is viable
 Are cash flows and profit margins adequate

Comparatives (ISA 710)

General
 Ensure info agrees with prior period (also remember opening balances- need to refer back to prior period audited
financial statements and working papers. If first time auditing, will also need other audit procedures)
 Accounting policies consistent
 Material misstatement in prior period – audit procedures
 Prior period included in report, but not specifically referred to, unless under certain conditions
 Effect on audit report
 Previous period modified opinion, and matter is still unresolved- must also modify in current opinion (11)- refer to
both the current year and the previous year’s figures in the basis for modification paragraph
 Prior period audited by predecessor – state in other matter paragraph in audit report (13)
- Fact that the predecessor audited, the type of opinion, and the date of the report
 Prior period not audited- state in other matter paragraph (must obtain sufficient appropriate evidence regarding OB)

Other information (ISA 720)

General
 Auditor does not express an opinion on the other information presented in the annual report, but still needs to read
through information and evaluate whether there is a material inconsistency
 Must ensure that the users of the financial statements can rely on the information presented in the annual reports
If material inconsistency found
Identified before the audit report issued
 Determine what should be adjusted ‐ AFS, other info or auditor’s understanding
 Discuss with management
 If adjusted – audit adjustments; If not adjusted –consider effect on audit opinion
Identified after audit report issued
 If adjusted ‐ Evaluate steps to inform users about adjustment
 If not adjusted – Legal counsel; limit reliance placed on audit report
Reporting
 Must have a separate paragraph in the audit report entitled “other information”, stating, amongst others, that the
other information is not the responsibility of the auditor (see examples in SAAPS 3)

Quality control and documentation (ISQC 1)

Engagement Quality Control Review
 Review (see A35)- basically an audit of the work performed by the auditors, to ensure the quality thereof
 A process designed to provide an objective evaluation of the significant judgments the engagement team made and
the conclusions it reached in formulating the report.
When performed
 For all audits of financial statements of listed entities, and a firm can also set out its own criteria for other entities
What to include (37 and 38)
(a) Discussion of significant matters with the engagement partner;
(b) Review of the financial statements or other subject matter information and the proposed report;
(c) Review of selected engagement documentation relating to significant judgments made and conclusions reached
(d) Evaluation of the conclusions reached in formulating the report and consideration of whether it is appropriate.
Listed entities also include:
(a) The engagement team’s evaluation of the firm’s independence in relation to the specific engagement;
(b) Whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or
contentious matters, and the conclusions arising from those consultations; and
(c) Whether documentation selected for review reflects the work performed in relation to the significant judgments and
supports the conclusions reached. (Ref: Para. A45–A46)
Eligibility of Reviewers-39 to 41
 Establish eligibility through the technical requirements needed, and the degree to which an engagement quality
control reviewer can be consulted on the engagement without compromising the reviewer’s objectivity
 Provide for the replacement of the engagement quality control reviewer where the reviewer’s ability to perform an
objective review may be impaired.

Documentation- 42, 45 – 47 and 57 ‐ 59

Policies and procedures on documentation
(a) The procedures required by the firm’s policies on engagement quality control review have been performed;
(b) The engagement quality control review has been completed on or before the date of the report; and
 (c) The reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the significant
judgments the engagement team made and the conclusions it reached were not appropriate.
Other-establish policies and procedures for:
 Completion of the assembly of final engagement files
 Confidentiality, safe custody, integrity, accessibility and retrievability of engagement documentation
 Retention of engagement documentation
Consultation
 Appropriate consultation takes place on difficult or contentious matters
 Sufficient resources are available
 The nature, scope and conclusions are documented and agreed to by both parties
 Conclusions are implemented
Differences of Opinion
 The firm shall establish policies and procedures for dealing with and resolving differences of opinion
 Such policies and procedures shall require that:
- Conclusions reached be documented and implemented
- The report should not be dated until the matter is resolved- may need to change report

Evaluation procedures
General
 The auditor must evaluate the evidence obtained during the audit to determine whether it is sufficient and
appropriate to address all the risks of material misstatement (RoMM) identified during planning.
 Auditor will also determine if the RoMM has been reduced to an acceptable level and, if required, will request the
management of the entity to adjust the financial statements for any material differences identified during the audit

Criteria of sufficient and appropriate audit evidence

Evaluating the sufficiency and appropriateness of audit evidence ISA 330.25 ‐.27
Sufficient ISA 500.5; A26 – A33
 Quantity of audit evidence, affected by (matter of professional judgement)
– Auditor’s assessment of RoMM
– Materiality (Sample sizes)
– Errors and differences identified
Appropriateness
 Quality of audit evidence
 Reliable ‐ source (internal vs external); nature (written/verbal); consistent with other
evidence; accuracy, completeness ‐ link to ISA 240.13
 Relevant ‐ addresses RoMM, relevant to assertion: consideration of direction of
testing

Reporting (ISA 330.25 ‐.27)

 Before conclusion of audit – evaluate whether RoMM at assertion level remain
appropriate (evidence/findings indicate otherwise, changes to assessment)
 Conclude on whether sufficient and appropriate audit evidence has been obtained (professional judgement) – if
not, attempt to obtain further audit evidence.
 If unable to obtain sufficient and appropriate evidence- qualified opinion or disclaimer of opinion
 Thus, in theory question, split between sufficient and appropriate, and discuss applicable factors underneath each
Quality control (ISA 220)
 Links to engagement performance (ISQC 1) – policies and procedures in place to ensure that the firm/engagement
partner issue reports that are appropriate- ill also look at sufficiency and appropriateness of audit evidence
Audit documentation (ISA 230.8; A21 – A24)
 Consider whether working papers
 - Contain sufficient information of work performed + evidence obtained (results/conclusions + significant
matters)
- Are properly cross‐referenced to working papers, trial balance and AFS
- Adequately reviewed by senior staff/audit partner
 Assembly of final audit file: timely basis (<60 days of date of auditors’ report)
 Retention period: minimum of 5 years from date of audit report
External confirmations ISA 505
 Par 16: The auditor shall evaluate whether the results of the external confirmation procedures provide relevant and
reliable audit evidence, or whether further audit evidence is necessary.

Opening balance ISA 510

Obtaining of evidence
 Par 10- If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the
auditor shall express a qualified opinion or disclaim an opinion on the financial statements,
 Par 11- If the auditor concludes that the opening balances contain a misstatement that materially affects the
current period’s financial statements, and the effect of the misstatement is not appropriately accounted for or not
adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion

Consistency of Accounting Policies

 Par 12. If the auditor concludes that:
a) the current period’s accounting policies are not consistently applied in relation to opening balances
b) a change in accounting policies is not appropriately accounted for or not adequately presented or disclosed
 the auditor shall express a qualified opinion or an adverse opinion as appropriate in accordance with ISA 705.
Modification to the Opinion in the Predecessor Auditor’s Report
 Par 13- If the predecessor auditor’s opinion regarding the prior period’s financial statements included a modification
to the auditor’s opinion that remains relevant and material to the current period’s financial statements, the auditor
shall modify the auditor’s opinion on the current period’s financial statements
Analytical procedures ISA 520
Analytical Procedures that Assist When Forming an Overall Conclusion
 Par 6. Design and perform analytical procedures near the end of the audit that assist the auditor when forming an
overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the
entity.
 A18- The results of such analytical procedures may identify a previously unrecognized risk of material
misstatement. In such circumstances, ISA 315 requires the auditor to revise the auditor’s assessment of the risks of
material misstatement and modify the further planned audit procedures accordingly.
Estimates ISA 540 (Rev)
Obtaining Audit Evidence from Events Occurring up to the Date of the Auditor’s Report
 Par 21. When the auditor’s further audit procedures include obtaining audit evidence from events occurring up to
the date of the auditor’s report, the auditor shall evaluate whether such audit evidence is sufficient and
appropriate to address the risks of material misstatement relating to the accounting estimate, taking into account
that changes in circumstances and other relevant conditions between the event and the measurement date may
affect the relevance of such audit evidence in the context of the applicable financial reporting framework. (Ref: Para.
A91–A93)
Related parties ISA 550
 Related parties should be properly identified, accounted for or disclosed in the AFS. – IAS 24
 Auditor needs to ensure that related party transactions are properly disclosed
 Not properly disclosed- presents the financial statements from fair representation, and cause them to be
misleading- must consider impact on audit report
 Internal audit ISA 610 (Rev)
 Par 23. The external auditor shall perform sufficient audit procedures on the body of work of the internal audit
function, and must determine its adequacy for purposes of the audit, including evaluating whether:
a) The work of the function had been properly planned, performed, supervised, reviewed and documented;
b) Sufficient appropriate evidence had been obtained to enable the function to draw reasonable conclusions; and
c) Conclusions reached are appropriate in the circumstances and the reports prepared by the function are
consistent with the results of the work performed.
Use of experts ISA 620
 Par 3. The auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by
the auditor’s use of the work of an auditor’s expert. Nonetheless, if the auditor using the work of an auditor’s
expert, having followed this ISA, concludes that the work of that expert is adequate for the auditor’s purposes, the
auditor may accept that expert’s findings or conclusions in the expert’s field as appropriate audit evidence.

Identified audit differences (ISA 450)

Final materiality
Recalculate final materiality
 Recalculate using the same benchmarks as for overall planning materiality (will use the figures of the audited
financial statements)
 Only consider overall planning materiality (as this is where the audit procedures were decided on)
 Compare planning materiality to final materiality
- Thus, a final materiality that is above the planning materiality would mean that all the necessary procedures
would have been performed, and actually “over-audited”
- If final materiality is lower than planning materiality, too little would have been tested, and additional procedures
would need to be performed
Material misstatements
 Differences between the presentation/ disclosure required by IFRS, and what the entity did- through fraud or error
 Auditor should consider whether misstatement identified is material.
Uncorrected misstatements
 Definition: Misstatements that the auditor has accumulated during the audit and that have not been corrected.
 **Will not include clearly trivial misstatements
1st Classification- Material or not
Qualitative: (ISA 450.A21)
 Affects compliance with regulatory requirements or with debt covenants or other contractual requirements
 Incorrect application of an accounting policy that is currently immaterial, but may become material in future periods
 Masks a change in earnings or other trends, especially in the context of general economic and industry conditions
 Affects ratios used to evaluate the entity’s financial position, results of operations or cash flows
 Has the effect of increasing management compensation- e.g. ensuring bonusses being received
 Is significant having regard to the auditor’s understanding of known previous communications to users – e.g.
forecasts
 Relates to items involving particular parties- e.g. external parties being related parties
 Fraud is also usually regarded as qualitatively material irrespective of the amount, because is influence the integrity
of management or the reliance on internal controls is it occurred at a lower level.
 If not a going concern anymore- according to IFRS the financial statements must be prepared on the liquidation
basis
Quantitative:
 Individually quantitatively material = Individual misstatement > Final materiality
 If not individually quantitatively material – When aggregated with other immaterial misstatements, the aggregate
may be material (but not including trivial
misstatements)-thus then goes to schedule
 of uncorrected misstatements- but only take into account amounts that were not already classified as material
(qualitatively or quantitatively)
 Evaluate misstatements in aggregate (i.e. their effect on the AFS) against final materiality:
- Assets, Liabilities, Equity, RE
2nd Classification (ISA 450.A6)
 Factual: Misstatements where there is no doubt and where supporting documentation is available.
 Judgmental: Differences arising from the judgments of management concerning accounting entries (accounting
estimates)
 Projected: The auditor's best estimate of misstatements in populations; usually derived from sampling.
- Calculated by dividing the error amount in the sample by the percentage in the sample that had errors (thus
error in sample, divided by sample size, multiplied by population size)
Practical answering
1. First determine whether the misstatement might be a subsequent event, and then refer to those considerations
2. State the amount that would constitute the uncorrected misstatement (difference between what management did
and what auditor states must be done), and the affect that it would have on the financial statements- Thus write if
there is an overstatement or understatement, and of which line items
3. Discuss whether it is quantitively and/or qualitatively material- discuss both
- Qualitatively- will usually not be if there is no breach in laws or regulations or breach in IFRS, e.g. just a
difference in accounting estimates- if there is thus direct factual non-compliance with IFRS, will be qualitatively
material
- Quantitively- if above final materiality amount
 State and explain whether it is factual, judgemental or projected
4. State that, if it is deemed to be material (or if in aggregate material), that management will be requested to adjust
the statements- thus the effect of the misstatement, and how it should be adjusted
5. **Discuss the effect on the audit report if not appropriately adjusted
6. If the financial statements are adjusted, the auditor will have to perform audit procedures on the adjustment to
ensure that it is done correctly.

Conclusion Procedures
Communication with TCWG
The auditor’s responsibility to subsequently communicate with TCWG (ISA 260)
 Auditor’s responsibility in relation to F/S audit
 Planned scope and timing of audit
 Significant findings from audit
 Auditor independence
Communicating deficiencies in internal control with TCWG (ISA 265 (Revised))
Definitions
(a) Deficiency in internal control – This exists when:
(ii) A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct,
misstatements in the financial statements on a timely basis; or
(iii)A control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely
basis is missing.
(b) Significant deficiency in internal control – A deficiency or combination of deficiencies in internal control that, in the
auditor’s professional judgment, is of sufficient importance to merit the attention of those charged with governance
* Significant deficiencies need to be communicated with TCWG
* See par A6-A7 for matters that are considered to be deficiencies
Manner of communication
 In writing (report)
 Description of deficiency and potential effect
 Sufficient information – TCWG to understand
- Purpose of audit – opinion
 - That the internal controls were considered for purposes of audit and not to express an opinion
- Matters reported are limited to those ID

Key audit matters

ISA 701 ‐ Key audit matters identified:
 ISA 701 defines key audit matters as those matters which in the auditor’s professional judgement, 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.
1. Communicated with TCWG- state the applicable ISA applicable according to which the auditor must
communicate the matter with TCWG (ISA 260 main source)
2. Required significant audit attention (significant risk or significant management judgement- thus not only
basic evidence, extensive audit resource needed to be allocated)
3. Matter of most audit significance - is it fundamental to users; understanding of the financial statements,
and are extensive audit resources allocated
 Shall not communicate a matter in the Key Audit Matters Section, if that event should require a modification of
opinion- thus if it is modified, will probably be a key audit matter, but will not be described in the key audit matter
section, but in the Basis for Opinion section (to which the auditor, may make reference to)
 Must communicate significant matters to TCWG- ISA 260 (Rev)- (16 & A 17‐28) ISA 701 (9 & A16‐26)
 The audit report of a private company is not required to deal with key audit matters. ISA 701 applies (primarily) to
listed companies.
 Thus, must discuss each of the 3 requirements for it to be a key audit matter, and thus to be included in the Key audit
Matters paragraph in the audit report

Concluding and expressing an audit opinion

General
 Audit opinion: A certification that accompanies the financial statements. It is based on an audit of the procedures
and records used to produce the statements and delivers an opinion as to whether material misstatements exist in
the financial statements.
 This opinion is relied upon by stakeholders of the entity which they use to make certain decisions
**Requirements and basis for opinion (ISA 700.11)
 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. That conclusion shall take into account:
a) The auditor’s conclusion, in accordance with ISA 330, whether sufficient appropriate audit evidence has
been obtained;
b) The auditor’s conclusion, in accordance with ISA 450, whether uncorrected misstatements are material,
individually or in aggregate; and
c) The evaluations required by paragraphs 12–15. (Prepared in accordance with the reporting framework)
Pervasive definition
 Pervasive effect on the financial statements:
- Are not confined to specific elements, accounts or items of the financial statements;
- If so confined, represent or could represent a substantial proportion of the financial statements;
- In relation to disclosures, are fundamental to users’ understanding of the financial statements.
Unmodified (unqualified) opinion (ISA 700 and 706)
 **See standard unqualified audit report for the content and format- study** (SAAPS 3, VOL 2B)
 Annual financial statements are fairly represented in all material aspects
Basic paragraphs
1. Opinion
2. Basis for opinion- describe the matters that lead to the opinion
Other information added (ISA 706)
 ***Must first determine whether it is a key audit matter in terms of ISA 701- if it is, cannot be in the emphasis of
matter or other matter paragraph (can display more prominently in key audit matters paragraph to emphasise)
 Emphasis of matter
 Emphasises info disclosed/presented in AFS- refers to a matter appropriately presented/disclosed, but it is of such
importance that it is fundamental to users’ understanding of the financial statements- need to draw attention to it
 ***Matter emphasised cannot be materially misstated or a key audit matter
Other matter
 Emphasises info not required to be disclosed/presented, but relevant to user’s understanding- not key audit
matter
Qualified opinion (ISA 705 and 706)
 Matter due to an inability to obtain sufficient appropriate audit evidence; and matter is material but not
pervasive
 Annual financial statements contain an uncorrected material misstatement; and matter is material but not
pervasive- “except for” included in the opinion paragraph.
Example paragraph
 In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the
financial statements present fairly, in all material respects, the financial position of ABC Limited as at 31 December
20X1, and its financial performance and cash flows for the year then ended in accordance with International
Financial Reporting Standards and the requirements of the Companies Act of South Africa.
Disclaimer of opinion (ISA 705 and 706)
 Matter due to an inability to obtain sufficient appropriate audit evidence- thus, the auditor was unable to obtain
sufficient evidence in order to express an opinion, thus must be disclaimed
 Matter is material and pervasive
 If it is established that there will be a disclaimer, any qualification or adverse opinion arising from certain items will
be meaningless (overridden)
Example paragraph
 We do not express an opinion on the financial statements of ABC Limited. Because of the significance of the matter
described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on these financial statements
Adverse opinion (ISA 705 and 706)
 Annual financial statements contain an uncorrected material misstatement- “do not present fairly” included in the
opinion paragraph.
 Matter is material and pervasive- E.g. an entity that did not consolidate a subsidiary that it controls
Example paragraph
 In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the
financial statements do not present fairly the financial position of ABC Limited as at 31 December 20X1, and its
financial performance and cash flows for the year then ended in accordance with International Financial Reporting
Standards and the requirements of the Companies Act of South Africa.
Important appendices
 ISA 700 ‐ appendix illustrative examples to draft an unmodified opinion
 ISA 705 ‐ appendix illustrative examples to understand what the modified opinion should be and what is included in
the audit report due to this.
 ISA 706 ‐ appendix illustrative examples to be able to draft an unmodified opinion with an emphasis or other matter
paragraph or know what a modified opinion with an emphasis of matter audit report contains.
Practica
answer
1. F
i
r
s
t

determine whether it is a subsequent event, and discuss appropriate considerations

2. To discuss the effect on the audit opinion, must first discuss the matter, and all the aspects that relate to
materiality (Thus quantitative or qualitative (discuss both), and factual, judgemental or projected)
3. Then discuss how management has decided to account for the matter- if not told how the client has handled it,
discuss the options and how it would affect the report and opinion
4. Conclude whether it is material and/or pervasive- discuss all necessary considerations, depending on the mark
count. If situation is not clear if it is pervasive, state the different options
5. State if the auditor will request the management to adjust and how they should adjust; and that the auditor will
have to perform further audit procedures if it is adjusted
6. State the effect on the of the audit report (if it will have a modification), as it will have an effect on the audit
opinion.
7. State which type of opinion will be presented, and why
8. State that the basis for qualification paragraph will include the detail of the incident and the necessary disclosure
of the amounts.- (will contain “presents fairly”, “except for” or “do not present fairly”)
 Thus, go through all the steps in the flowchart
Audit report
 Look at the examples of audit reports in ISA 705 and SAAPS 2 for the overall format
 The basis of opinion paragraph will be they key one, where must be explained what the misstatements are, and
how it affects the financial statements- be specific about the IFRS standards affected
 Report on other legal or regulatory requirements- need to disclose there if there was a reportable irregularity in
terms of the APA