ISA 705 – Modifications to the Opinion in the Independent Auditor’s Report

5 Why no sufficient appropriate audit evidence?

Most of the time auditor is not able to collect sufficient appropriate audit evidence due to:

1. Limitations imposed by circumstances
2. Limitations imposed by management

Usually the terms of engagement are decided before auditor actually starts carrying out audit procedures and in the engagement letter management may include the limitations on the scope of audit work. If auditor finds such limitations significantly reducing his capacity to obtain sufficient audit evidence then auditor will ask management/client to remove such limitations. If such limitations are not removed then auditor shall not accept the audit engagement.

If after accepting the audit engagement, auditor becomes aware of limitations on his audit work which may result in modified opinion then he shall ask management to remove the imposed limitations.

If management refuses to remove such limitations then auditor shall communicate the fact to those charged with governance and assess if alternative audit procedures can help collect sufficient audit evidence.

If limitations are not removed and as a result auditor is unable to gather required evidence then auditor decides about the opinion modification in his opinion as follows:

1. If auditor concludes that undetected misstatements could be material but not pervasive then express a qualified opinion
2. If auditor concludes that undetected misstatements could be both material and pervasive then:
   1. Auditor shall withdraw from engagement and communicate the matter to those charged with governance detailing the reasons of modification.
   2. If withdrawal from engagement is not possible then express a disclaimer of opinion