we can classify audit reports in number of ways but usually audit reports are classified n two broad...

8/11/2019 We can classify audit reports in number of ways but usually audit reports are classified n TWO broad categories w

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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

Unmodified report with unmodified opinion

Modified audit report

Unmodified opinion

o Modified report with unqualified opinion AND emphasis of matter paragraph and/or

other matter paragraph

Modified opinion

o Qualified opinion (qualified report)

o Adverse opinion (adverse report)

o Disclaimer of opinion (disclaimer 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 frameworkor financial statements give

true and fair view than such audit report or auditors report is calledunmodified or

unqualified report. ISA 700describes the contents and format of the unmodified

report in detail.

2 Modified audit report

Auditors report is said to be modified if the contents of the unmodified report as stated

under ISA 700 are changed:

either because of the addition of emphasis of matter paragraph or other matters

paragraph where opinion is still unmodified (modified report with unmodified opinion)

or because of the modified opinion i.e. (modified report with modified opinion):

o Qualified opinion

o Adverse opinion

o Disclaimer of opinion


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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:

Emphasis of matter paragraph

Other matter paragraph

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 statementsand 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 auditors 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 statementsand in auditors judgment understanding that

matter is vital for usersunderstanding of the audit, the auditors responsibilities

or the auditors reportand this is not prohibited by law or regulation. OMP is included

after opinion paragraph and any EMP in the auditors report or somewhere else in the

auditors 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 auditor concludes that, based on the audit evidence obtained, the financial

statements as a whole are not free from material misstatement; or

The auditor is unable to obtain sufficient appropriate audit evidence to conclude that

the financial statements as a whole are free from material misstatement.


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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:

The auditor, having obtained sufficient appropriate audit evidence, concludes

that misstatements, individually or in the aggregate, are material, but not

pervasive, to the financial statements; or

The auditor is unable to obtain sufficient appropriate audit evidenceon which

to base the opinion, but the auditor concludes that the possible effects on the

financial statements of undetected misstatements, if any, could be material but not

pervasive.

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 orin 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 evidenceon 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


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Audit Reporting

Audits are conducted to express a true and fair view of a companys financial statements. Therefore, the auditors

opinion expressed in the ultimate report is based on the information reviewed and analyzed during the verification

of financial statements. Upon completing the report, the auditor may express one of the following four opinions:

Unqualified Opinion

Qualified Opinion

Disclaimer of Opinion

Adverse Opinion

Unqualified Opinion

An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair

view in accordance with the financial reporting framework used for the preparation and presentation of the

financial statements. It indicates that:

Generally accepted accounting principles are consistently applied in the preparation of financial statements;

Financial statements comply with the relevant statutory requirements and regulations; and

There is adequate disclosure of all material matters relevant to the proper presentation of financial

information (subject to statutory requirements).

Qualified Opinion

A qualified opinion is expressed when the auditor concludes that an unqualified opinion cannot be expressed, but

that the effect of any disagreement with management is not so material and pervasive as to require an adverse

opinion, or the limitation of scope is not so material and pervasive as to require a disclaimer of opinion. A

qualified opinion should be expressed as being subject to or except for the effects of the matter to which the

qualification relates.

Disclaimer of Opinion

A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so material and pervasive

that the auditor has not been able to obtain sufficient appropriate audit evidence and is, therefore, unable to

express an opinion on the financial statements.

Adverse Opinion

An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial

statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading

or incomplete nature of the financial statements.- See more at: http://www.india-briefing.com/news/types-audit-audit-reporting-india-

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