ISA 700: Forming an Opinion on Financial Statements
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Questions and Answers

What does ISA 700 deal with?

Forming an opinion and reporting on financial statements

What are the objectives of the auditor according to ISA 700?

  • To form an opinion based on audit evidence (correct)
  • To express the opinion clearly in a written report (correct)
  • To describe the financial statements in detail
  • All of the above

    • The auditor should express an unmodified opinion when financial statements are free from material misstatement.

    True

    _____ opinion is used when the auditor concludes that the financial statements are so materially misstated that they do not present fairly the financial position of the entity.

    <p>Adverse</p> Signup and view all the answers

    Match the following types of modified opinions with their descriptions:

    <p>Qualified opinion = Used for material misstatements, individually or in aggregate, that are material but not pervasive to the financial statements Adverse opinion = Used when misstatements, individually or in aggregate, are both material and pervasive to the financial statements Disclaimer of opinion = Used when the auditor cannot form an opinion on the financial statements due to severe limitations, lack of knowledge, or lack of independence</p> Signup and view all the answers

    When should an auditor disclaim an opinion?

    <p>When the auditor is unable to obtain sufficient appropriate audit evidence.</p> Signup and view all the answers

    What are the implications if an auditor concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive?

    <p>All of the above</p> Signup and view all the answers

    The auditor may withdraw from the audit if misstatements in the financial statements are material but not pervasive.

    <p>False</p> Signup and view all the answers

    An ______ of Matter paragraph in the auditor's report should refer only to information presented or disclosed in the financial statements.

    <p>Emphasis</p> Signup and view all the answers

    What does ISQC1 stand for?

    <p>International Standard for Quality Control 1</p> Signup and view all the answers

    What does the ISQC1 system consist of for achieving the company's objectives?

    <p>Both a and b</p> Signup and view all the answers

    The authority of ISQC1 extends to all professional accountants regardless of their responsibilities.

    <p>False</p> Signup and view all the answers

    What is one of the key aspects to enhance internal culture within a company according to the text?

    <p>Recognizing quality as essential in performance</p> Signup and view all the answers

    What should employees be provided with reasonable assurance about?

    <p>Both a and b</p> Signup and view all the answers

    Companies should provide employees with adequate number of competent employees with ________ and commitment to ethical principles.

    <p>capabilities</p> Signup and view all the answers

    Professional tasks should be executed according to professional criteria and legal requirements.

    <p>True</p> Signup and view all the answers

    Match the following ethical principles with their descriptions:

    <p>Objectivity = Impartiality in judgments Professional competence and due care = Maintaining knowledge and skills Confidentiality = Not disclosing information Professional behavior = Adhering to ethical standards</p> Signup and view all the answers

    Study Notes

    Forming an Opinion and Reporting on Financial Statements (ISA 700)

    • Deals with the auditor's responsibility to form an opinion on the financial statements and the form and content of the auditor's report
    • Written in the context of a complete set of general-purpose financial statements

    Objectives

    • To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained
    • To express clearly that opinion through a written report that also describes the basis for that opinion

    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
    • 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

    Requirements

    • The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework
    • The auditor shall evaluate whether the financial statements:
      • Adequately disclose the significant accounting policies selected and applied
      • The accounting policies selected and applied are consistent with the 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 making decisions

    Form of Opinion

    • The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework
    • If the auditor concludes that the financial statements as a whole are not free from material misstatement, or is unable to obtain sufficient appropriate audit evidence, the auditor shall modify the opinion in the auditor's report in accordance with ISA 705

    Auditor's Report

    • The auditor's report shall be in writing
    • The auditor's report shall have a title that clearly indicates that it is the report of an independent auditor
    • The auditor's report shall include a description of the responsibility of management and the auditor's responsibility
    • The auditor's report shall include a section with the heading "Opinion"
    • The auditor's report shall be signed and dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor's opinion

    Modifications to the Opinion in the Independent Auditor's Report (ISA 705)

    • Deals with the auditor's responsibility to issue an appropriate report in circumstances when the auditor concludes that a modification to the auditor's opinion on the financial statements is necessary
    • Establishes three types of modified opinions: qualified opinion, adverse opinion, and disclaimer of opinion

    Types of Modified Opinions

    • Qualified opinion: used when the auditor concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements
    • Adverse opinion: used when the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements
    • Disclaimer of opinion: used 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

    Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report (ISA 706)

    • Deals with additional communication in the auditor's report when the auditor considers it necessary to draw users' attention to a matter or matters presented or disclosed in the financial statements
    • Or to 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

    Definitions

    • 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### Auditor's Report

    • The auditor's report shall include an "Other Matter" paragraph, which is to be placed immediately after the "Opinion" paragraph and any "Emphasis of Matter" paragraph, or elsewhere in the report if relevant.

    • The "Other Matter" paragraph communicates specific information to users of the auditor's report.

    Communication with Those Charged with Governance

    • The auditor shall communicate with those charged with governance regarding the expectation of including an "Emphasis of Matter" or "Other Matter" paragraph in the auditor's report.
    • The auditor shall also communicate the proposed wording of this paragraph to those charged with governance.

    Here are the study notes for the text:

    International Standard on Quality Control (ISQC1)

    • The International Standard on Quality Control (ISQC1) provides guidance on establishing and maintaining a quality control system for firms that perform audits, reviews, and other assurance and related services.
    • The standard applies to all firms, regardless of their size, that perform such services.

    Quality Control System

    • A quality control system should be established and maintained by the firm to ensure that:
      • Engagements are performed in accordance with professional standards and applicable laws and regulations.
      • Reports issued by the firm are appropriate in the circumstances.
      • The firm is operating efficiently and effectively.

    Elements of a Quality Control System

    • The quality control system should include policies and procedures addressing each of the following elements:
      • Leadership responsibilities for quality within the firm.
      • Relevant ethical requirements.
      • Acceptance and continuance of client relationships and specific engagements.
      • Human resources.
      • Engagement performance.
      • Monitoring.
      • Review of engagement files after completion.
      • Consultation.
      • Consideration of independence.
      • Quality control review of engagement files.

    Leadership Responsibilities for Quality

    • The firm's leadership is responsible for establishing and maintaining a culture of quality within the firm.
    • The leadership should:
      • Set the tone for quality within the firm.
      • Establish policies and procedures for quality control.
      • Ensure that the firm's quality control policies and procedures are communicated to all personnel.

    Relevant Ethical Requirements

    • The firm should establish policies and procedures to ensure that personnel comply with relevant ethical requirements, including:
      • Independence.
      • Integrity.
      • Objectivity.
      • Professional behavior.
      • Confidentiality.
      • Professional competence and due care.

    Acceptance and Continuance of Client Relationships and Specific Engagements

    • The firm should establish policies and procedures for the acceptance and continuance of client relationships and specific engagements.
    • The firm should consider factors such as:
      • The integrity of the client.
      • The risk associated with the engagement.
      • The firm's expertise and resources.
      • The independence of the firm and its personnel.

    Human Resources

    • The firm should establish policies and procedures to ensure that personnel have the necessary competence, capabilities, and resources to perform engagements.
    • The firm should:
      • Recruit and hire personnel with the necessary skills and experience.
      • Provide ongoing training and professional development.
      • Evaluate the performance of personnel.

    Engagement Performance

    • The firm should establish policies and procedures to ensure that engagements are performed in accordance with professional standards and applicable laws and regulations.
    • The firm should:
      • Assign personnel with the necessary skills and experience to engagements.
      • Establish clear engagement objectives and scope.
      • Ensure that engagements are properly planned and supervised.

    Monitoring

    • The firm should establish policies and procedures for monitoring the effectiveness of its quality control system.
    • The firm should:
      • Regularly review and update its quality control policies and procedures.
      • Ensure that personnel are aware of and comply with quality control policies and procedures.
      • Identify and address any deficiencies in the quality control system.

    Review of Engagement Files after Completion

    • The firm should establish policies and procedures for reviewing engagement files after completion.
    • The review should be performed by a qualified reviewer who was not involved in the engagement.

    Consultation

    • The firm should establish policies and procedures for consultation among personnel.
    • The firm should:
      • Encourage personnel to consult with each other on matters involving professional judgments.
      • Ensure that consultations are documented.

    Consideration of Independence

    • The firm should establish policies and procedures to ensure that personnel are independent when performing engagements.
    • The firm should:
      • Identify and address any threats to independence.
      • Ensure that personnel are aware of and comply with independence requirements.

    Quality Control Review of Engagement Files

    • The firm should establish policies and procedures for reviewing engagement files to ensure that they comply with professional standards and applicable

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    Related Documents

    6- AUDIT CONCLUSIONS AND REPORTING ISA700-705-706.pptx
    2- INTERNATIONAL STANDARD ON QUALITY CONTROL 1 (2) (3).pptx

    Description

    This quiz covers the auditor's responsibility to form an opinion on financial statements and the content of the auditor's report, based on a complete set of general-purpose financial statements.

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