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CMA Intermediate · Corporate Accounting and Auditing · Audit Report and Reporting under CARO

Under SA 705 (Revised), the decision on which type of modified opinion is appropriate depends on the nature of the matter giving rise to the modification and on which other factor?

The second determinant is the auditor's judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements. Together with the nature of the matter, whether a misstatement or an inability to obtain evidence, it decides between qualified, adverse and disclaimer.

  1. AThe auditor's judgment about the pervasiveness of the effects or possible effects of the matter on the financial statementsCorrect
  2. BThe size of the audit fee relative to the entity's turnover
  3. CThe number of directors who have signed the financial statements
  4. DWhether the company has previously received a modified opinion

Explanation

SA 705 (Revised) states that the type of modified opinion depends on (a) the nature of the matter, i.e. whether the statements are materially misstated or may be materially misstated due to inability to obtain evidence, and (b) the auditor's judgment about pervasiveness of the effects or possible effects. Fees, signatories and prior opinions are not the criteria.

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