List and briefly explain the general forms of qualifications available to the auditor in drafting his audit report, stating the circumstances in which each qualification is appropriate. Give an example of each circumstance

A qualified report is a modified audit report issued when there are circumstances such that an unqualified opinion cannot be issued.
An auditor may be unable to express an unqualified opinion when:

i. There is a limitation on the scope of his work caused by:

Imposed by entity e.g. when engagement terms specify that he won‘t carry out procedures that he believes to be necessary

Circumstance e.g. appointment after stock taking

Inability to carry out audit procedures believed to be necessary e.g. because the accounting records are destroyed or corrupt.

ii. There is a disagreement with management regarding the acceptability of the accounting policies selected, methods of their application or adequacy of financial statements disclosure.
The qualifications can be summarized in the matrix:

Nature of circumstance Material but not pervasive Material and pervasive
1. Limitation of scope
The auditor is unable to carry out procedures because of a lack of evidence
e.g. lack of accounting records that have been lost or destroyed, or a lack of adequate information and explanations
from directors
‗Except for‘ opinion
Disclaimer of opinion
The auditor is unable to form an opinion and does not know whether the financial statements give a true and
fair view.
2. Disagreement
The auditor disagrees with the accounting treatment or disclosure of a matter such as the non-provision for a doubtful debt.
‗Except for‘ opinion
Adverse opinion
The financial statements do not give a true and fair view.
Explanation of Matrix
„Except for‟ opinion (referred to as qualified opinion in ISA 700) should be expressedwhen the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management or limitation on scope is not so material and pervasive as to require an adverse opinion or disclaimer of opinion.
A disclaimer of opinion should be expressed when the possible effect of a limitation onscope is so material and pervasive that the auditor has been unable to obtain sufficient
appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.
An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.

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