Advanced Auditing, Assurance and Professional Ethics · Reporting

SA 700 (Revised): Forming an Opinion on Financial Statements

Updated 5 October 2026 · Fact-checked

Under SA 700 (Revised), you form an opinion by first concluding whether you have obtained reasonable assurance that the financial statements as a whole are free from material misstatement. You then evaluate whether they are prepared, in all material respects, in accordance with the applicable framework. Finally, you choose an unmodified or modified opinion.

Understand SA 700 (Revised): Forming an Opinion on Financial Statements

An audit ends with an opinion. SA 700 (Revised) tells you what you must conclude and evaluate before you sign it. It is the bridge between your audit work and your report.

The starting point is a conclusion on assurance. You ask: have I obtained reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error? To answer, you consider the audit evidence obtained and whether uncorrected misstatements, alone or together, are material (the SA 450 link).

Next comes evaluation against the framework. You check whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This includes evaluating the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's judgments.

You also check specific points. Do the statements adequately disclose the significant accounting policies selected and applied? Are the policies consistent with the framework and appropriate? Are the accounting estimates reasonable? Is the information relevant, reliable, comparable and understandable? Do disclosures give users enough understanding of the effect of material transactions and events? Is the terminology, including the title of each statement, appropriate?

For a fair presentation framework, you go further. You evaluate the overall presentation, structure and content, and whether the statements represent the underlying transactions and events in a way that achieves fair presentation. You also check that the statements refer to or describe the applicable framework adequately. If the conclusions are satisfactory, the opinion is unmodified. If not, you apply SA 705 (Revised) and issue a modified opinion.

Key rules to remember

Core conclusion: Reasonable assurance obtained that the financial statements as a whole are free from material misstatement (fraud or error); This is the first conclusion before any opinion. It rests on audit evidence and on evaluating uncorrected misstatements.
Framework test: Prepared, in all material respects, in accordance with the applicable financial reporting framework; This is the standard wording of the test. Use the words 'in all material respects'.
Fair presentation test: Overall presentation, structure and content + underlying transactions and events fairly represented; Applies for fair presentation frameworks such as Ind AS. For a compliance framework, the test is compliance only.
Opinion language (fair presentation): 'give a true and fair view' or 'present fairly, in all material respects'; The wording is determined by law, regulation or accepted practice in the jurisdiction, not by the auditor's preference. In India, 'true and fair view' is used for companies.
Decision rule: Conclusions satisfied → unmodified opinion; otherwise → modified opinion under SA 705 (Revised); Modified types: qualified, adverse, disclaimer.

How to solve SA 700 (Revised): Forming an Opinion on Financial Statements questions

Use this order for any question on forming an opinion. It keeps your answer in provision-facts-conclusion form.

1Identify the framework in the case: fair presentation or compliance, and which framework applies (for example Ind AS or the Companies Act requirements).
2List the facts that bear on the opinion: uncorrected misstatements, disclosure gaps, policy issues, estimates, management bias, evidence not obtained.
3State the first conclusion: has reasonable assurance been obtained that the statements as a whole are free from material misstatement? Weigh the misstatements individually and in aggregate.
4Evaluate the framework requirements: policies and their disclosure, estimates, relevance, reliability, comparability, understandability, terminology, and bias indicators.
5For a fair presentation framework, add the overall presentation test: structure, content and whether transactions are fairly represented.
6Decide the opinion. If the matter is not material, the opinion is unmodified. If it is material but not pervasive (a misstatement or an inability to obtain evidence), the opinion is qualified. If a misstatement is material and pervasive, the opinion is adverse. If an inability to obtain evidence is material and pervasive, you disclaim an opinion.
7Write the conclusion in one clear sentence and link it to SA 705 (Revised) if modified.

Quickest way: Three-question opinion check

When to use it: Use when the case is long and you have about 5 to 7 minutes for a written answer.

Question 1: Is any misstatement or evidence gap material? If no, lean unmodified.
Question 2: Do the statements comply with the framework, including disclosures, policies and fair presentation? Note each failure briefly.
Question 3: If there is a material problem, is it pervasive? Not pervasive (misstatement or inability to obtain evidence): qualified. Pervasive misstatement: adverse. Pervasive inability to obtain evidence: disclaimer.
Write: provision (SA 700 requires...), facts (here...), conclusion (hence the opinion is...).

Common mistakes in SA 700 (Revised): Forming an Opinion on Financial Statements

Treating SA 700 as only the report format
The standard also covers report content, so students memorise headings and skip the opinion-forming requirements.
Fix: Keep two blocks in mind: forming the opinion (evaluations and conclusions) and the report elements. Start your answer with the evaluations when asked how an opinion is formed.
Dropping 'in all material respects'
Students write 'prepared in accordance with the framework' and forget materiality.
Fix: Always include the phrase. The test is not perfection but freedom from material departure.
Ignoring management bias
Bias is placed in the qualitative evaluation and is easy to miss.
Fix: Mention that you evaluate whether the accounting practices, including judgments and estimates, show indicators of possible management bias.
Applying the fair presentation test to every framework
Students forget that the extra evaluation applies only to fair presentation frameworks.
Fix: First classify the framework. Ind AS-based statements of companies are fair presentation. Add the overall presentation evaluation only then.
Choosing the opinion type without reasoning
Students jump to 'qualified' or 'adverse' without testing materiality and pervasiveness.
Fix: State materiality first, then pervasiveness, then the type. Refer to SA 705 (Revised) for the modification.
Confusing evaluating misstatements with forming the opinion
SA 450 and SA 700 overlap.
Fix: Say that SA 450 evaluation of uncorrected misstatements feeds into the SA 700 conclusion on reasonable assurance.

Worked examples

Example 1

Case: You are auditing Nirmal Foods Ltd, an Ind AS company. You find that a significant accounting policy on revenue recognition is not disclosed, although the policy is appropriate and applied consistently. The amounts are correctly recorded. Management refuses to add the disclosure. You judge the omission material but not pervasive. What opinion do you form and why?

Show the solution

Provision: SA 700 (Revised) requires you to evaluate whether the financial statements adequately disclose the significant accounting policies selected and applied, in accordance with the applicable framework.
Framework: Ind AS is a fair presentation framework, so adequate disclosure is part of fair presentation.
Facts: The policy is appropriate and the amounts are correct, but disclosure is missing and management will not correct it. This is an uncorrected disclosure departure.
Materiality and pervasiveness: The omission is material but not pervasive.
Conclusion on assurance: You cannot say the statements are prepared in all material respects in accordance with the framework, as the disclosure is lacking.
Opinion: A qualified opinion under SA 705 (Revised), with the basis for opinion describing the omitted disclosure.
Omitted information: Under SA 705 (Revised), where practicable, you include the omitted disclosures in the Basis for Qualified Opinion section, unless prohibited by law or regulation.

Answer: Qualified opinion ('except for') because the omitted policy disclosure is material but not pervasive. The Basis for Qualified Opinion describes the omission and, where practicable, includes the omitted disclosure unless law prohibits it.

Example 2

Case: In auditing Rao Textiles Ltd, you find several judgments on estimates (provisions and useful lives) that each fall in an acceptable range but all move profit upwards. Each estimate is reasonable individually. Uncorrected misstatements are small. What must you consider before forming an opinion?

Show the solution

Provision: SA 700 (Revised) requires you to evaluate the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's judgments.
Facts: Every judgment favours higher profit, even though each is individually within a reasonable range.
Evaluation: The consistent direction is an indicator of possible management bias. You consider whether it, together with the small uncorrected misstatements, affects the conclusion on material misstatement.
Further action: You assess whether the bias is itself a misstatement or points to a risk of fraud, and discuss it with management and those charged with governance.
Conclusion: If the combined effect is not material and the statements are fairly presented, the opinion stays unmodified. If the bias results in material misstatement, you consider a modified opinion.

Answer: You must treat the one-directional estimates as an indicator of possible bias and evaluate the combined effect with uncorrected misstatements. If the total is not material and presentation is fair, issue an unmodified opinion. Otherwise modify it under SA 705 (Revised).

Exam tips

Open any 'form an opinion' answer with the two conclusions: reasonable assurance on material misstatement, and compliance with the framework.
In case scenarios, first spot whether the framework is fair presentation or compliance, since this changes the evaluation.
Link SA 700 to SA 450, SA 705 and SA 570 where facts point to them; link answers to the right standard by name.
In MCQs, watch the wording 'in all material respects' and 'as a whole'. Options that drop these are often wrong.
Write short provision-facts-conclusion paragraphs. Do not copy long standard text.

Practice questions from Reporting

SA 700 (Revised): Forming an Opinion on Financial Statements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ProfessionalAudit Evidence and Forming an Opinion

SA 700 (Revised): Forming an Opinion on Financial Statements: frequently asked questions

What is the main difference between forming an opinion and reporting under SA 700?

Forming the opinion is the evaluation and conclusion work you do on the financial statements. Reporting is how you express the opinion in the auditor's report. SA 700 covers both, and the opinion must come first.

Does the fair presentation evaluation apply to all financial statements?

No. It applies when the framework is a fair presentation framework, such as Ind AS. For a compliance framework, you evaluate whether the statements comply with the framework's requirements.

What happens if I cannot conclude that reasonable assurance has been obtained?

You must express a modified opinion or disclaim an opinion, as required by SA 705 (Revised). The type depends on whether the matter is material or pervasive and whether it arises from misstatement or inability to get evidence.

Does management bias always lead to a modified opinion?

No. Bias is an indicator you must evaluate. It leads to a modified opinion only if it results in material misstatement, or if its effect is material along with other misstatements.