The nature and type of reports issued by the practitioner depends on the type of assurance engagement. However we will be speaking strictly in context of audit engagement as the question is about the types auditreports.
We can classify audit reports in number of ways but usually audit reports are classified n TWO broad categories which are then further classified as follows:
Unmodified audit report
Modified audit report
In short there are in total FIVE different types of audit reports that auditor can issue depending on the circumstances of the audit engagement.
Lets understand each type of audit report in detail
1 Unmodified audit report
When auditor on the basis of examination and the evidence obtained expresses his opinion that financial statements of the entity are prepared in all material respects in accordance with applicable financial reporting framework or financial statements give true and fair view than such audit report or auditor’s report is called unmodified or unqualified report. ISA 700 describes the contents and format of the unmodified report in detail.
2 Modified audit report
Auditor’s report is said to be modified if the contents of the unmodified report as stated under ISA 700 are changed:
It is important to understand that audit report is not always modified because of the modified opinion. In simple words audit reports with modified opinion are always modified audit reports but modified audit reports are not always with modified opinion.
2.1 Modified report with unmodified opinion
This is called modified report because the contents of the unmodified report are modified as additional paragraph(s) is (are) added. Additional paragraphs can be either or both of the following:
2.1.1 Emphasis of Matter Paragraph
Auditor includes an emphasis of matter paragraph (EMP) when auditor considers that it is necessary to draw the attention of users of financial statements to the matter that is already disclosed or reported in the financial statements and understanding of the specified matter is important in understanding of the financial statements. EMP is included after the opinion paragraph in the audit report. However students must be clear that inclusion of EMP DOES NOT mean that auditor’s opinion is modified.
2.1.2 Other Matter Paragraph
Auditor includes an other matter paragraph (OMP) when auditor considers that it is necessary to communicate a matter other than those that are presented or disclosed in the financial statements and in auditor’s judgment understanding that matter is vital for users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report and this is not prohibited by law or regulation. OMP is included after opinion paragraph and any EMP in the auditor’s report or somewhere else in the auditor’s report if the content of the Other Matter paragraph is relevant to the Other Reporting Responsibilities section.
2.2 Modified report with modified opinion
Auditor modify his opinion when he concludes that it will not be appropriate to express an unmodified/unqualified opinion. Auditor reaches such conclusion when:
The modification to the audit opinion is determined by the auditor by applying his professional judgment on the circumstances at hand. He may modify his opinion to express a qualified opinion, an adverse opinion or a disclaimer.
2.2.1 Qualified opinion
Audit report containing a qualified opinion is also called qualified report.
Auditor expresses a qualified opinion when:
2.2.2 Adverse opinion
Audit report containing an adverse opinion is also called adverse report.
The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasiveto the financial statements.
2.2.3 Disclaimer
Audit report containing a disclaimer of opinion is also called disclaimer report
The auditor shall disclaim an opinion 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.
