Accounting Q&A · Auditing · Topic 8
Practise unmodified and modified opinions, key audit matters and emphasis paragraphs. Try each answer before revealing it.
Worked example
Inventory is materially overstated and the effect is confined. Quantify the effect and ask management to correct it. Qualify if uncorrected and not pervasive.
Core concepts
1. What should you know about unmodified opinion?
The statements are prepared in all material respects under the applicable framework.
2. What should you know about qualified opinion?
A material issue or possible effect is not pervasive.
3. What should you know about adverse opinion?
Identified misstatements are material and pervasive.
4. What should you know about disclaimer of opinion?
Insufficient evidence has possible material and pervasive effects, subject to the applicable requirements.
5. What should you know about pervasiveness?
Effects extend widely, affect a substantial portion, or are fundamental to understanding disclosures.
6. What should you know about basis for opinion?
The section explaining the basis of the opinion and relevant audit responsibilities.
7. What should you know about emphasis of matter?
Draws attention to a properly presented or disclosed matter fundamental to understanding the statements.
8. What should you know about other matter?
Addresses a matter outside the statements relevant to understanding the audit or report.
9. What should you know about key audit matter?
A matter of most significance in the audit selected from matters communicated to governance.
10. What should you know about going concern section?
A separate section can be required for adequately disclosed material uncertainty.
Case 1
Inventory is materially overstated and the effect is confined.
11. Which audit concept is central here?
Known misstatement.
12. What is the main objective?
Assess materiality and pervasiveness.
13. What evidence or procedure would you use?
Quantify the effect and ask management to correct it.
14. What limitation should you consider?
A confined effect can still be material.
15. What should happen next?
Qualify if uncorrected and not pervasive.
Case 2
The auditor cannot obtain evidence across several major balances.
16. Which audit concept is central here?
Scope limitation.
17. What is the main objective?
Evaluate possible material and pervasive effects.
18. What evidence or procedure would you use?
Attempt alternatives and communicate with governance.
19. What limitation should you consider?
Lack of evidence does not prove a misstatement.
20. What should happen next?
Consider a disclaimer if the limitation remains pervasive.
Case 3
A major lawsuit is appropriately disclosed and fundamental to users.
21. Which audit concept is central here?
Emphasis of matter.
22. What is the main objective?
Assess report placement under ISA 706.
23. What evidence or procedure would you use?
Read the disclosure and consider whether it is a key audit matter.
24. What limitation should you consider?
Emphasis cannot repair inadequate disclosure.
25. What should happen next?
Consider emphasis if the applicable criteria are met.
Professional standards reference. For statutory duties, confirm the rules in the relevant jurisdiction.