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CS Professional · Compliance Management, Audit and Due Diligence

Forming an Opinion and Reporting: Chapter Guide for CS Professional

Forming an opinion and reporting is how an auditor turns audit evidence into a signed report. You decide whether the financial statements give a true and fair view, choose the opinion type under SA 700 and SA 705, add EOM or OM paragraphs under SA 706 where needed, and meet the other reporting duties.

What this chapter covers

This chapter covers the last stage of an audit. You have gathered evidence and assessed risk. Now you must conclude, choose the right opinion, and write the report in the form the standards and the Companies Act require.

Three standards carry the chapter. SA 700 (Revised) sets out how to form an opinion and the structure of the report. SA 705 (Revised) deals with modifying the opinion when the statements are misstated or when you cannot get enough evidence. SA 706 (Revised) deals with Emphasis of Matter and Other Matter paragraphs, which draw attention to a matter without changing the opinion. Alongside these sit the reporting duties under the Companies Act, 2013, which is why the report has a section on other legal and regulatory requirements.

The chapter ties into the rest of Paper 3. Audit planning, evidence, and due diligence all feed into the conclusion you reach here. In the exam, questions on this chapter are usually case-based. You get facts, such as a fire, a change of auditor, or a scope limitation, and you must pick the right opinion or paragraph and justify it.

Paper 3 is a written paper, and this chapter suits written answers well. Most questions follow the same pattern: state the rule, apply it to the facts, and conclude. If you know the opinion types and the paragraph rules cold, you can answer scenario questions quickly and with confidence. The chapter also rewards precise wording. Examiners look for the exact phrase, such as "Our opinion is not modified in respect of this matter", and for the correct heading. Practising these gives you marks that are easy to secure, and the same skill carries into audit and due diligence work in practice.

Forming an Opinion and Reporting: topics in the order to study them

  1. 1Audit Evidence and Forming an OpinionEvery opinion rests on evidence, so you need to know what the auditor must conclude before choosing any opinion type.
  2. 2Types of Audit OpinionOnce you know the basis for the conclusion, learn the four opinion types and the triggers for each under SA 705.
  3. 3Auditor's Report under SA 700 and Companies ActWith the opinion types clear, learn how the report is laid out and where each element sits.
  4. 4Emphasis of Matter and Other Matter ParagraphsThese paragraphs sit inside the report structure, so study them after the layout and after you know when an opinion is modified.
  5. 5Other Reporting Responsibilities and CommunicationThis completes the picture with the duties beyond the opinion and the communication that goes with the report.

How to prepare Forming an Opinion and Reporting

Treat this chapter as a decision process, not a list of definitions. For every fact pattern, ask what the matter is, how it affects the statements, and what the report must say.

  1. Read the chapter once for the flow: evidence, conclusion, opinion, report, other duties.
  2. Build a one-page table of the opinion types. For each, note the trigger, whether the matter is material, and whether it is pervasive.
  3. Learn the report layout from SA 700 in order. Then write it out from memory with the headings: Opinion, Basis for Opinion, Key Audit Matters, Responsibilities, and Report on Other Legal and Regulatory Requirements.
  4. Study EOM and OM with the sample wording in SA 706. Practise telling them apart: EOM points to something already disclosed in the statements, and OM points to something not presented or disclosed there.
  5. Learn the placement rules. An EOM on the reporting framework can go straight after Basis for Opinion. With a KAM section, an EOM can go before or after it.
  6. Solve past-style case questions. Write the provision, apply the facts, and conclude in three short parts.
  7. Revise the exact standard wording and headings the day before the exam.

Common mistakes in Forming an Opinion and Reporting

  • Using an EOM paragraph to fix a misstatement.

    Fix: An EOM never replaces a modification. If the statements are materially misstated, modify the opinion. Use EOM only for a matter that is properly presented or disclosed and fundamental to understanding.

  • Mixing up EOM and OM paragraphs.

    Fix: EOM points to a matter already in the financial statements. OM covers a matter not presented or disclosed there that is relevant to users' understanding of the audit or the report, such as a prior-period audit by another auditor.

  • Leaving out the 'opinion is not modified' sentence in an EOM.

    Fix: Always end the EOM with the statement that the opinion is not modified in respect of the matter. Learn it as fixed wording.

  • Giving an opinion type without justifying it from the facts.

    Fix: Write three parts: the rule, the facts applied, and the conclusion. State whether the matter is material and whether it is pervasive.

  • Treating the Basis for Opinion section as optional or placing it wrongly.

    Fix: Learn the order of the report. The Basis for Opinion follows the Opinion, and the paragraphs and sections that follow depend on it.

  • Copying standard wording without adapting it to the case.

    Fix: Rework the wording to the facts, as the standard itself requires for reporting under Section 143(3) of the Companies Act, 2013. Use the company's facts and note numbers from the question.

Last-day revision: Forming an Opinion and Reporting

  • SA 700 (Revised) governs forming an opinion and the form of the report; SA 705 governs modified opinions; SA 706 governs EOM and OM paragraphs.
  • A modified opinion is a qualified opinion, an adverse opinion, or a disclaimer of opinion.
  • If a disclosure on compliance with another framework is misleading, give a modified opinion under SA 705.
  • If that disclosure is not misleading but is fundamental to users' understanding, add an EOM paragraph.
  • With two applicable frameworks, consider each separately; the opinion refers to both.
  • If statements comply with one framework but not the other, an unmodified opinion on one and a modified opinion on the other can be given.
  • An EOM paragraph ends with a statement that the opinion is not modified in respect of the matter.
  • An EOM can carry a descriptive heading, for example Emphasis of Matter – Effects of a Fire.
  • An OM paragraph does not cover other reporting duties, additional specified procedures, or opinions on specific matters.
  • An OM paragraph on other reporting duties may go in the Report on Other Legal and Regulatory Requirements section.
  • On a disclaimer for lack of evidence, the auditor's responsibilities section is cut down to the items SA 705 lists.
  • Reporting under Section 143(3) of the Companies Act, 2013 needs the SA 700 wording to be suitably reworded to fit the audit.

Forming an Opinion and Reporting practice questions

Forming an Opinion and Reporting in other exams

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

Forming an Opinion and Reporting: frequently asked questions

What is the difference between an Emphasis of Matter and an Other Matter paragraph?

An Emphasis of Matter paragraph draws attention to a matter that is already presented or disclosed in the financial statements and is fundamental to users' understanding. An Other Matter paragraph deals with a matter not presented or disclosed there that is relevant to users' understanding of the audit, the auditor's responsibilities or the report. Neither changes the opinion.

Does an Emphasis of Matter paragraph modify the opinion?

No. The sample wording in SA 706 states that the opinion is not modified in respect of the matter. If the matter calls for a modified opinion, you deal with it under SA 705 instead.

Where does an Emphasis of Matter paragraph go in the report?

It depends on the matter and your judgment of its significance. A paragraph on the financial reporting framework may go straight after the Basis for Opinion section. When a Key Audit Matters section is presented, it may go directly before or after that section.

How should I answer a case question on this chapter?

State the relevant standard and rule, apply it to the facts given, and conclude with the opinion or paragraph. Mention materiality and pervasiveness where relevant. Use the standard's wording and headings.