Auditing standards play a significant role in the auditing profession. Among the important auditing standards, SA 700, SA 705, and SA 530 provide guidance for the auditor's opinion. The auditor should follow these auditing principles to ensure that the audit report is reliable, accurate, and in compliance with the auditing standards. The auditor should exercise professional judgment and document the audit working papers to support the audit findings and conclusions.
SA 700: The Auditor's Opinion
SA 700 deals with the auditor's opinion in the audit report. It states that the auditor should express an opinion on the financial statements based on the audit evidence obtained. The auditor's opinion can be:
- Unmodified (Clean) Opinion: It indicates that the financial statements are prepared in accordance with the applicable financial reporting framework, and there are no material misstatements.
- Modified Opinion: It indicates that the financial statements are not free from material misstatements or the auditor is unable to obtain sufficient appropriate audit evidence to form an opinion.
The types of modified opinions are:
- Qualified Opinion: It indicates that the financial statements are materially misstated but not pervasive.
- Adverse Opinion: It indicates that the financial statements are materially misstated and pervasive.
- Disclaimer of Opinion: It indicates that the auditor is unable to obtain sufficient appropriate audit evidence to form an opinion.
SA 705: Modifications to the Opinion in the Independent Auditor's Report
SA 705 deals with the circumstances when the auditor is required to modify the opinion in the audit report. It states that the auditor should modify the opinion when:
- The auditor concludes that the financial statements are materially misstated, and management has refused to make the necessary corrections.
- The auditor is unable to obtain sufficient appropriate audit evidence to support the financial statements.
- There is a limitation of scope due to a situation beyond the auditor's control.
SA 530: Audit Sampling
SA 530 deals with audit sampling, which is the process of selecting a sample of items from a population for testing. It provides guidance on how to design and select the sample, perform audit procedures on the sample items, and evaluate the results. The key concepts related to audit sampling are:
- Sampling Risk: It is the risk that the sample selected for testing is not representative of the population, and the conclusions drawn from the sample may not be reliable.
- Audit Sample: It is the group of items selected from the population for testing.
- Sample Size: It is the number of items selected from the population for testing. The sample size should be determined based on the risk of material misstatement, tolerable deviation rate, expected population deviation rate, and quality of the internal control system.
Limitations of Scope
It is the situation when the auditor is unable to obtain sufficient appropriate audit evidence to support the financial statements. The auditor should communicate the limitations of scope in the audit report.
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