Reviewer Audit PDF

PSA 230 “Audit documentation” deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements. This standard requires that the auditor should prepare on a timely basis, audit documentation that provides -A sufficient and appropriate record of the basis f...

PSA 230 “Audit documentation” deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements. This standard requires that the auditor should prepare on a timely basis, audit documentation that provides -A sufficient and appropriate record of the basis for auditor’s report (Cabrera) -To support an opinion on financial statement (PICPA) - Evidence that the audit was performed in accordance with the PSA and applicable legal and regulatory requirement Terms defined: Audit documentation- means the record of: Audit procedures performed Relevant audit evidence obtained Conclusions that auditor reached (terms such as working paper or work papers are also sometimes used) Audit file – one or more folders or other storage media, in physical or electronic form, containing the records that comprise the audit documentation for a specific engagement Experienced auditor – an individual (whether internal or external to the firm) who has practical audit experience, and a reasonable understanding of: -Audit processes -PSAs and applicable legal and regulatory requirements -The business environment in which the entity operates -Auditing financial reporting issues relevant to the entity’s industry PSA 230 further clarifies the following PSAs that require audit documentation, but not limited to these: PSA 240-The auditors responsibility relating to fraud in an audit of FS-par 44-47 PSA 260-Communication with those charged with governance – par 19 PSA 300-Planning an audit of FS – par 11 PSA 315- Identifying and assessing the risks of material misstatement through understanding the entity and its environment – par 33 PSA 330-The Auditor’s responses to assessed risk – par 29-31 PSA 540-Auditing accounting estimates including fair value accounting estimates, and related disclosures – par 23 PSA 600-Special consideration – audits of group FS – par 50 What are Audit Working Papers? Records kept by the auditor regarding: Procedures applied Tests performed Information obtained Pertinent conclusion reached in the engagement Objectives of Audit Documentation Prepare sufficient and appropriate audit documentation to help enhance the quality of audit Facilitate the effective review and evaluation of the evidence obtained and conclusions reached before the auditor’s report is realized Other Objectives of Audit Documentation Assisting to plan and perform the audit engagement  Assisting the team to direct, supervise, discharge audit works in PSA Enabling accountability of audit works Record Retention Quality control reviews and inspections External Inspections Other Objectives of Audit Documentation To support the auditor’s opinion on financial statements To support the auditor’s representation as to compliance with PSA Assist the auditor in the planning, performance, review and supervision of the engagement Assist the auditor in planning future audits Provide information useful in rendering other services Other objectives of Audit Documentation Providing adequate defense in case of litigation Planning and performance of the audit Directing and supervising the audit work Work accountability Quality review The Form, Content, Extent of Audit Documentation Audit documentation depend on factors such as:  The size and complexity of entity The nature of the audit procedures to be performed The identified risks of material misstatement The significance of audit evidence obtained The nature and extent of exceptions identified The need to document a conclusion not readily determinable from the audit evidence obtained The audit methodology and tools used Design of the audit documentation ➤ It is neither necessary nor practicable to document every matter considers during the audit It should be what would enable an experience auditor, having no previous connection with the audit, to understand: The nature, timing, and extent of the audit procedures performed in compliance with the PSA and applicable legal and regulatory requirement The results of the audit procedures and the audit evidence obtained  Significant matters arising during the audit and the conclusion reached In the documentation of the nature, timing and extent, the auditor shall record ➤Identifying characteristics of the specific items or matters tested (what inventory, type of receivables, related parties, etc). Who performed the audit work and the date such work was completed Who reviewed the audit work performed and the date and extent of such review The Form, Content, and Extent of Audit Documentation Depends on auditor’s judgment since it is neither necessary nor practical to document every matter Audit documentation should be complete in itself and should not require subsequent or additional oral explanation Audit documentation should be concise and limited only to essentials Audit documentation should be appropriately organized to provide a clear link to the significant matters The Form, Content, and Extent of Audit Documentation Experienced Auditor The audit documentation should be in such form, content, and extent that would enable an experienced auditor, having no previous connection with the audit, to understand: The nature, timing, and extent of the audit procedures performed to comply with PSAs and applicable legal and regulatory requirements The results of the audit procedures and the audit evidence obtained Significant matters arising during the audit and the conclusions reached thereon. Types of Working Papers Audit administrative working papers Working trial balance and lead schedule Supporting schedules and analysis Adjusting and reclassifying entries Audit memoranda and documentations of corroborating information Types of Working Papers Audit administrative working papers Audit plans Audit programs  Internal control questionnaires Flowchart Engagement letter Time budgets Assignment of team Appointment of specialists, experts Audit Programs Detailed list of procedures to be performed in an audit engagement Types of audit programs: a.Standard All-Purpose b.Tailor-made c. Modified standard form Types of Working Papers Working trial balance and lead schedules: Working trial balance worksheet Lead or top schedule-grouping of related account balances Supporting schedules and analyses: Supporting schedules Account analysis Working Trial Balance List of the accounts in the client’s general ledger with columns that includes unadjusted amounts directly from the client’s accounting records, proposed adjusting entries, and adjusted (audited) amounts Types of Working Papers Supporting schedules and analyses Supporting schedules: Detailed schedules prepared by the auditors in support of specific amounts on the financial statements  Account analysis: Shows activity during the period Summary of adjusting and reclassifying entries Adjusting entries Reclassifying entries Audit notes or memoranda and documents of corroborating information Audit notes Outside documentations Types of Working Papers Audit Notes, Memoranda, Corroborating Data Audit notes: Any deviations from the expected procedures Outside documentations: Gathered by the auditors such as confirmation replies, client’s commitment on warranty losses Classification of Working Papers: A. Permanent Files Copies of the articles of incorporation and by-laws, articles of partnership Major contracts Engagement letter Organizational chart Analyses of long-term accounts Stockholders accounts Internal control analyses Information concerning related parties Chart of accounts and accounting procedure manual Classification of Working Papers:  B. Current File Financial statements Audit program Working trial balance Lead schedules Detailed schedules Correspondence with other parties such as lawyers, customers, banks, management Source Documents Generated Customer purchase order: request from customer to purchase goods Sales order: identifies goods ordered by a customer price, quantity, terms, etc Shipping document or bill of lading: identifies good shipped, contract between seller and carrier Invoice: list of goods or services and the prices to be paid for them Source Documents Generated Remittance advice: a letter sent by a customer to a supplier informing payment of invoice. If the customer is paying by cheque, the remittance advice often accompanies the cheque. Customer check: personal check as payment by a customer Remittance listing: list of remittance advices Official Receipt: written evidence on sale of goods or service and acknowledgement of collection of cash payment Bank deposit slip: proof of deposit made to the account Bank reconciliation: reconciliation of book & bank balance Source Documents Generated Purchase requisition: request that goods be purchased Purchase order: issued to vendors to purchase goods (a.k.a. PO), Receiving report: identifies goods received from a vendor Vendor’s invoice: often called the billing invoice Source Documents Generated Purchase requisition: request that goods be purchased Purchase order: issued to vendors to purchase goods (a.k.a. PO) Receiving report: identifies goods received from a vendor Vendor’s invoice: often called the billing invoice Source Documents Generated (continuation) Voucher package: purchase requisition, PO, receiving report, invoice, voucher Check Remittance advice Bank reconciliation Source Documents Generated (continuation) Sales order Production order Bill of materials Material requisition Job cost sheet Source Documents Generated Personnel records Time record Payroll register Employee earnings records Hiring and deduction authorization forms Pay-checks Payroll cost allocation Bank reconciliation Source Documents Generated Bond certificate Commercial paper Stock certificates Confirmation: the Auditor sends request f Information to a third party who is genera independent of the client. Cash in bank using the standard bank co Accounts receivable with customers Long-term investments with stock broken Inventory consigned out with consignee Property plant and equipment leased out Accounts payable with vendors  Long-term debt with creditors Capital stock issuances with the registrar EXCLUSIONS IN AUDIT DOCUMENTATION Superseded drafts of working papers and financial statements Notes that reflect incomplete or preliminary thinking Previous copies of documents corrected for typographical errors or other errors Duplicates of documents Forms and directives of clients that do not support the conclusions drawn by the auditor Things that should be avoided: Illegibility, vagueness and incomplete No cross referencing done or one sided Irrelevant client documents  Non-signing of/No initials 1. Preparer 2. Reviewer Adjusting and re-classification entries are not properly explained or documented PSA 230 provides: The extent of working paper documentation is a matter of professional judgment Neither necessary nor practicable to document every matter the auditor considers Only forms and directives used by the client to support conclusions drawn by the auditor may be included Mechanics of Working Paper Preparations Good working papers should show the following qualities: Complete in itself and should not require additional oral explanation  Factual, accurate and free from clerical and/or computational errors Clearly indicate the nature and extent of audit work performed Concise and limited only to essentials Prepared in a neat and orderly manner to facilitate review of work done Mechanics of Working Paper Preparations Working papers should provide: Evidence of compliance with the standards of auditing Sufficient data or other information reported are in agreement with the client's record Clear indications of work performed How the auditor resolved any exception disclosed by his examination Appropriate connections of the auditor on significant aspects of the engagement Ownership of working papers:  Exclusive property of the auditor Client has no right to the working papers prepared by the auditor May sometimes serve as a reference source for the client (at the discretion of the auditor) Should not be considered as substitute for the client’s record Exceptions to confidentiality: Permitted by law and is authorized by the client or the employer Required by law: A. Evidence in the course of legal proceedings, needs subpoena duces tecum B. Infringement of the law that come to light C. For the auditor to defend himself when sued by the client Professional duty or right to disclose: A. Quality review by the BOA to grant accreditation to practice public accountancy  B. Respond to an inquiry by the regulatory board (PRC) C. Protect the professional interest of a professional accountant in legal proceedings D. Compliance with technical standards and ethics requirements Retention period of Audit Working Paper: At least five (5) years from the date of the auditor’s report SEC Regulation Code No. 68 requires at least seven (7) years Guidelines for the preparation of working papers Heading Working papers must contain information such as name of client, type of working papers, description and content ❖ Indexing Refers to the use of alphanumeric system to label the working papers Cross-indexing or cross referencing To provide a trail useful to supervisors in reviewing the working papers Tick marks Symbols that describe the audit procedures performed Using Electronic Tools in Working Papers Three important principles to note when using electronic tools in working papers preparation: All the requirements of the PSAs shall apply Electronic files require electronic document management. Include matters on accessibility, data security, application management, back-up routines, edit rights, storage locations, review procedures, necessary audit trails, and others Final documents must be retained and be accessible in accordance with the firm’s file retention policies INTRODUCTION Clear communication between the auditor and the client is crucial to the success of an audit engagement. With this, there will be multiple instances that which the auditor connects with the client to share its progress, findings, and results. Through these communications, relevant information is obtained from those charged with governance that may be helpful for the performance of the audit. This would also enable the client to take appropriate actions in a timely manner on any issues or findings noted. Furthermore, to serve as principal support to the audit opinion, the auditor prepares and retains documentation of information gathered in the audit, including internal and external communication. AUDIT COMMUNICATION Throughout the engagement, there will be multiple Communications between the auditor and the client. These communications may be done in writing or Through verbal communication. These communications Aim to address multiple audit areas including planning And performance of the audit, internal control, findings, Adjustments, and recommendations. The table presents a Summary of common communications in the audit. Engagement Letter Communication with those charged with governance o The auditor shall agree on the terms of the audit engagement with management or those charged with governance, as. Appropriate. The agreed terms are documented in an audit engagement letter or other suitable form of written agreement. The auditor shall establish an effective two- way communication with those charged with governance and provide updates regarding the auditor’s responsibilities in the audit, planned scope and timing of the audit, significant findings, and independence. Communication of Internal control matters The auditor shall communicate in writing significant deficiencies in internal control identified during the audit to those charged with governance on a timely basis. Management Representation Letter The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned. Management Letter (optional) The auditor may communicate to the client any findings, issues, and recommendations that are considered value-adding in addition to other required communications. These remarks are communicated to the management or those charged with governance through a management letter. 2 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE The auditor shall promote effective two-way communication with those charged with governance and tim to clearly communicate the following: Auditor’s responsibilities in the audit The responsibilities to be communicated shall include that a. The auditor is responsible for forming and expressing an opinion on the financial statements that have been prepared by the management with the oversight of those charged with governance. b. The audit of the financial statements does not relieve management or those charged with governance of their responsibilities. Planned scope and tming of the audit This shall present an overview of the planned scope and tinning of the audit. Significant findings The auditor shall communicate with those charged with governance: a. The auditor’s views about significant qualitative aspects of the entity’s accounting practices, including accounting policies, accounting estimates, and financial statement disclosures  b. Significant difficulties, if any, encountered during the audit c. Unless all of those charged with governance are involved in managing the entity: Significant deficiency, if any, in the design, implementation, or operating effectiveness of internal control that has come to the auditor’s attention Significant matters, if any, arising from the audit that were discussed, or subject to correspondence with management Written representations the auditor is requesting Independence (for listed entries) a. Other matters arising from the audit that, in the auditor’s professional judgment, are significant to the oversight of the financial reporting process In the case of listed entities, the auditor shall communicate with those charged with governance of its compliance with relevant ethical requirements regarding independence. DEFINITION Those charged with governance are the persons or organizations (e.g. corporate trustee) with responsibility of overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager 4 Management is composed of the persons with executive responsibility for the conduct of the entity’s operations. For some entities in some jurisdictions, management includes some or all of those charged with governance, for example, executive members of a governance board, or an owner-manager. The Communication Process The auditor shall communicate with those charged with governance the form, timing, and expected general content of communications. Forms of Communication The auditor shall communicate in writing with those charged with governance regarding significant findings from the audit when, in the auditor’s professional judgment, oral communication would not be adequate. Written communications need not include all matters that arose curing the course of the audit. Timing of Communication The auditor shall communicate with those charged with governance on a timely basis. Adequacy of the Communication Process The auditor shall evaluate whether the two-way Communication between the auditor and those charged With governance has been adequate for the purpose of The audit. If it has not, the auditor shall evaluate the Effect, if any, on the auditor’s assessment of the risks of Material misstatement and ability to obtain sufficient Appropriate audit evidence, and shall take appropriate Action. Documentation Where matters required by the PSA to be comunicatiction are communicated orally, the auditor shall document them, and when and to whom they were communicated When matters have been communicated in writing, t auditor shall retain a copy of the communication as of the audit documentation MANAGEMENT REPRESENTATION LETTER PSA 580 Written Representations requires the auditor to obtain representations from the entity’s ➤ management with appropriate responsibilities for the financial statements and knowledge of the matters concerned ➤ those charged with governance when appropriate The Objectives of an Audit of Financial Statement: Objectives The Objectives of the auditor are: To form an opinion on the financial statements based on an evaluation of the conclusion drawn from the audit evidence obtained To express clearly that opinion through a written report ISA 700 (Revised), par. 6 PSA 700 (REVISED) “Forming an Opinion and Reporting on Financial Statements” Establishes the standards Provides guidance on the form and content of the auditor’s report issued As a result of an audit performed by an Independent Auditor of the Financial Statements of an Entity Effective for audits of financial statements ending on or after December 15, 2016 FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS LECTURE PRESENTATION The Audit Process Pre- Engagement Issuance of the Audit Report Post Audit Responsibilities Audit Planning Completing the Audit Study & Evaluation of Internal Control Test of Control SUBSTANTIVE TESTING 2 PSA 700 (REVISED) “Forming an Opinion and Reporting on Financial Statements” Establishes the standards Provides guidance on the form and content of the auditor’s report issued As a result of an audit performed by an Independent Auditor of the Financial Statements of an Entity Effective for audits of financial statements ending on or after December 15, 2016 The Objectives of an Audit of Financial Statement: Objectives The Objectives of the auditor are: To form an opinion on the financial statements based on an evaluation of the conclusion drawn from the audit evidence obtained To express clearly that opinion through a written report ISA 700 (Revised), par. 6 The end product of the Financial Statement audit is an Audit Report that contains the auditor’s opinion about the fair presentation of the Financial Statements. The auditor should review and assess the conclusions drawn from the audit evidence obtained as the basis for the expression of an opinion on the financial statements The review and assessment involves considering: Whether the financial statements have been prepared in accordance with an acceptable financial reporting framework Whether the financial statements comply with statutory requirements The auditor’s report should contain a clear written expression of opinion on the financial statements taken as a whole In Forming the Opinion, the Auditor Evaluates: ➤ Whether sufficient evidence has been obtained Whether uncorrected misstatements are material, individually or in aggregate ➤Evaluates whether the Financial Statements conform to the applicable financial reporting framework. Evidence Whether sufficient and appropriate evidence has been obtained Misstatements Whether uncorrected misstatements, which are misstatements that the auditor has accumulated during the audit and that has not been corrected, are material, individually or in aggregate Framework Whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework (e.g. PFRS) The Auditor’s Report shall be in Writing PSA 700, par. 20 (Revised) Types of Audit Opinion Type Unmodified or Unqualified Description Expressed if sufficient and appropriate evidence has been obtained that the financial statements are fairly presented in accordance with the applicable financial reporting framework Common Phrase Used Presents fairly, in all material respects Gives a true and fair view Qualified Expressed if there is a material limitation in scope or material non-compliance with the reporting framework but the overall financial statements remain fairly presented Except for Adverse Expressed if there is material non- compliance with the reporting framework that pervasively affects the financial statements Do not present fairly, in all material respect Disclaimer of opinion Expressed if there is material limitation in the scope of the audit that pervasively affects the financial statements 1 We do not express a conclusion The most common type of opinion is the unmodified opinion or unqualified opinion. Unqualified opinion: Issued when the auditor concludes, based on audit evidence obtained, that the financial statements are presented fairly in ALL material respects in accordance with the applicable financial reporting framework. If issuing an unqualified opinion: (PSA 700, par. A14; the Appendix, Illustration 1) ➤Uniformity in wording of the report is required. The profession has standardized the content of the report To enhance the credibility of the report in international perspective To promote the reader’s understanding of the report Basic Elements of Unqualified Report TITLE: Clearly indicate “Independent Auditor’s Report” To emphasize independence of the auditor with the client and has met all ethical requirements ➤Distinguish the auditor’s report from the reports that might be issued by others Addressee The addressee depends on the circumstances of the engagement. More often than not, it is addressed to the shareholders or those charged with governance of the entity whose financial statements are being audited. The report should not be addressed only to a specific officer (e.g. President, Chief Executive Officer, or Chief Financial Officer) of the audit client because these are members of management who are responsible for the financial statements audited. Client Entity Corporation Addressee of the Audit Report Often addressed to the shareholders or to those charged governance of the entity Partnership Either to partnership and the partners or the partnership Unincorporated or Joint Venture To the participants or venturers Proprietorship To the proprietor Third Party Outside Party / If the auditor is engaged by any party, other than the responsible party, the report is normally addressed to the engaging party. This may include prospective investor, creditor, prospective creditor, regulatory agencies, and courts of law Subtitle Report on the Audit of the consolidated Financial Statements The sub-title “Report on the Audit of the Financial Statements” is unnecessary in circumstances when the second sub-title “Report on Other Legal and Regulatory Requirements” is not applicable Auditor’s Opinion The first section of the auditor’s report shall include the auditor’s opinion and shall have the heading “Opinion” Opinion section shall include: Identify the entity whose financial statements were audited State that the financial statements have been audited Identify the title of each statement Refer to the notes and significant accounting practices Specify the period covered by each financial statements Basis for Opinion States that the audit was conducted in accordance with PSA Refers to the section of the auditor’s report that describes the auditor’s responsibilities under the PSA Includes: Auditor’s independence from the entity in accordance with the relevant ethical requirements Auditor’s fulfilment of other ethical requirements - Identify the jurisdiction of origin of the ethical requirements Or refer to IESBA Code of Ethics State whether the auditor believes that the audit evidence is sufficient and appropriate a basis of opinion Going Concern Where applicable, the auditor shall report in accordance with ISA 700 (revised) PSA 701 Refers to communicating key audit matters in the independent auditor’s report Definition Key Audit Matters (KAM) are those matters that, in the auditor’s professional judgment, were of most significance in the audit of financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance Key Audit Matters For audits of complete set of general purpose financial statements of listed entities  When the auditor is required by law or regulation or decides to communicate key audit matters in the auditor’s report Determining Key Audit Matters The auditor shall determine, from the matters communicated with those charged with governance, those matters that required significant auditor attention in performing the audit. In making this determination, the auditor shall take into account the following: (Ref: Para. A9-A18) Areas of higher assessed risk of material misstatement, or significant risks identified in accordance with ISA 315 (Revised).5 (Ref: Para. A19- A22) 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. (Ref: Para. A23-A24) The effect on the audit of significant events or transactions that occurred during the period. Steps in Key Audit Matters Matters that were communicated with those charged with governance Matters that required significant auditor attention Matters of most significance to the audit of current period Note: PSA 701 prohibits the auditor from communicating key audit matters when the auditor expresses a disclaimer of opinion Responsibilities of Management and Those Charged with Governance Preparation and fair presentation of the FS in accordance with applicable financial reporting frameworks internal control as management determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error Assessing the entity’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate as well as disclosing, if applicable, matters relating to going concern Identify those responsible for the oversight of the financial reporting process Auditor’s responsibilities for the Audit of the Financial Statements State the objectives of the auditor - Obtain reasonable assurance about whether the financial statements are free from material misstatement - Issue an auditor’s report that includes the auditor’s opinion State the matter on reasonable assurance State that misstatement can arise from fraud or error Report on other Legal and Regulatory Requirements (In case the auditor addresses other reporting responsibilities on the financial statement) Name of the Engagement Partner Unless the disclosure is expected to lead to a significant personal security threat EMPHASIS OF MATTER PARAGRAPH Definition An emphasis of matter paragraph is 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. Emphasis of Matter To emphasize important matters affecting the financial statement or affecting the auditor’s report Does not negate the auditor’s unmodified opinion Not to be construed as a modification to the opinion or substitute for the modified opinion Purpose: To promote the reader’s understanding of the Financial Statements Circumstances in Emphasis of Matter Significant uncertainties Early application of new accounting standard in advance of its effective date A major catastrophe that has a significant effect on the entity’s financial position A subsequent discovery of facts affecting the previously issued opinion Financial statements prepared using a special purpose framework (ex. Cash receipts and disbursement basis of accounting) Change from one acceptable accounting principle to another acceptable accounting principle OTHER MATTER PARAGRAPH Definition An other matter paragraph is 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 user’s understanding of the audit, the auditor’s responsibilities or the auditor’s report Other Matter Paragraph To communicate a matter that is not presented or disclosed in the financial statements Relevant to the users’ understanding of: The audit The auditor’s responsibilities The auditor’s report. Auditor’s signature Signed in the name of the auditor’s firm Personal name of the auditor X. Auditor’s Address Location in the jurisdiction where the auditor maintains his office Includes credentials, accreditations license number Date of the Auditor’s Report No earlier than the date on which: The auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion ➤All the Financial Statements including notes and disclosures have been prepared Those with recognized authority have asserted that they have taken responsibility for those financial statements 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. Modified report – issued when: ➤The auditor concludes that the Financial Statements as a whole are not free from material misstatements ➤The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the Financial Statements as a whole are free from material evidence ISA/PSA 705 (Revised) Deals with the auditor’s responsibility to issue an appropriate report in circumstances when in forming an opinion in accordance with ISA 700 (revised), the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary Effective for audits of Financial Statements ending on or after December 15, 2016 Modified Opinion is a Qualified Opinion, an Adverse Opinion or a Disclaimer of Opinion The three types of Modified Opinion A qualified Opinion An adverse Opinion A disclaimer of Opinion Pervasiveness 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 Pervasiveness Pervasive effects on the financial statements are those that, in the auditor’s judgment: 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; or In relation to disclosures, are fundamental to users’ understanding of the financial statements