HKSA 705 (Clarified) Modifications to the Opinion in the ...

1 1 Modifications to the Opinion in the Independent Auditor s Report hksa 705 Issued September 2009, revised July 2010, June 2014* Effective for audits of financial statements for periods beginning on or after 15 December 2009 Hong Kong Standard on Auditing 705 * There are amendments attached to this hksa resulting from the Hong Kong Companies Ordinance (Cap. 622) which became effective on 3 March 2014. The amendments apply to the first financial year of companies that begins on or after the commencement date of the new Companies Ordinance and all subsequent financial years ( typically the first set of financial statements covered would be for a financial period ending on or after 2 March 2015.)

2 Generally, for companies incorporated prior to 3 March 2014 with a calendar year end, the first applicable financial period is for the year ending 31 December 2015). Modifications TO THE Opinion IN THE INDEPENDENT AUDITOR S REPORT Copyright 2 hksa 705 COPYRIGHT Copyright 2009 Hong Kong Institute of Certified Public Accountants The Hong Kong Standards on Auditing are based on the International Standards on Auditing of the International Auditing and Assurance Standards Board, published by the International Federation of Accountants (IFAC) in April 2009 and are used with permission of IFAC.

3 This Hong Kong Standard on Auditing contains IFAC copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Operation and Finance, Hong Kong Institute of Certified Public Accountants, 37/F.

4 , Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by IFAC. Reproduction of Hong Kong Standards on Auditing outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFAC at Modifications TO THE Opinion IN THE INDEPENDENT AUDITOR S REPORT Copyright 3 hksa 705 (June 2014) HONG KONG STANDARD ON AUDITING 705 Modifications TO THE Opinion IN THE INDEPENDENT AUDITOR S REPORT (Effective for audits of financial statements for periods beginning on or after 15 December 2009) CONTENTS Paragraph Introduction Scope of this hksa .

5 1 Types of Modified Opinions .. 2 Effective Date .. 3 Objective .. 4 Definitions .. 5 Requirements Circumstances When a modification to the Auditor s Opinion Is Required .. 6 Determining the Type of modification to the Auditor s Opinion .. 7 15 Form and Content of the Auditor s Report When the Opinion Is Modified .. 16 27 Communication with Those Charged with Governance .. 28 Conformity and Compliance with International Standards on Auditing .. 29-30 Application and Other Explanatory Material Types of Modified Opinions.

6 A1 Nature of Material Misstatements .. A2 A7 Nature of an Inability to Obtain Sufficient Appropriate Audit Evidence .. A8 A12 Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-Imposed Limitation after the Auditor Has Accepted the Engagement .. A13 A15 Other Considerations Relating to an Adverse Opinion or Disclaimer of Opinion .. A16 Form and Content of the Auditor s Report When the Opinion Is Modified .. A17 A24 Communication with Those Charged with Governance.

7 A25 Appendix: Illustrations of Auditors Reports with Modifications to the Opinion Amendments resulting from the Hong Kong Companies Ordinance (Cap. 622) Hong Kong Standard on Auditing ( hksa ) 705, Modifications to the Opinion in the Independent Auditor s Report should be read in conjunction with hksa 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing. Modifications TO THE Opinion IN THE INDEPENDENT AUDITOR S REPORT Copyright 4 hksa 705 Introduction Scope of this hksa 1.

8 This Hong Kong Standard on Auditing ( hksa ) deals with the auditor s responsibility to issue an appropriate report in circumstances when, in forming an Opinion in accordance with hksa 700,1 the auditor concludes that a modification to the auditor s Opinion on the financial statements is necessary. Types of Modified Opinions 2. This hksa establishes three types of modified opinions, namely, a qualified Opinion , an adverse Opinion , and a disclaimer of Opinion . The decision regarding which type of modified Opinion is appropriate depends upon: (a) The nature of the matter giving rise to the modification , that is, whether the financial statements are materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence, may be materially misstated; and (b) The auditor s judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements.

9 (Ref: Para. A1) Effective Date 3. This hksa is effective for audits of financial statements for periods beginning on or after 15 December 2009. Objective 4. The objective of the auditor is to express clearly an appropriately modified Opinion on the financial statements that is necessary when: (a) The auditor concludes, based on the audit evidence obtained, that the financial statements as a whole are not free from material misstatement; or (b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.

10 Definitions 5. For purposes of the HKSAs, the following terms have the meanings attributed below: (a) Pervasive A term used, in the context of misstatements, to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. Pervasive effects on the financial statements are those that, in the auditor s judgment: (i) Are not confined to specific elements, accounts or items of the financial statements; (ii) If so confined, represent or could represent a substantial proportion of the financial statements; or 1 hksa 700, Forming an Opinion and Reporting on Financial Statements.