Modified Audit Opinions during COVID-19 crisis

Of interest to those responsible for dealing with audit committees and auditors

On 21 April, the Financial Reporting Council (FRC) published further guidance on modified auditors’ opinions and reports during COVID-19 crisis.

Two key objectives of any auditor are to obtain sufficient, appropriate audit evidence to support their audit opinion, and to then report their opinion on the financial statements based on the evidence obtained. On 16 March, the FRC published guidance to auditors on some of the practical issues facing companies and auditors in the current circumstances and noted the possibility that auditors may need to consider modifying their audit opinion where it is not possible for audit procedures such as, for example, inventory testing to be adequately performed or where economic and/or political uncertainty significantly affect key valuation judgements.

This new guidance provides helpful clarity as to how such modified opinions should best be expressed, depending on whether the auditor has been able to gather evidence to support statements in the accounts and the impact of any error on the financial statements.

A ‘qualified opinion’ is defined as one where, owing either to a lack of evidence (for reasons beyond the control of the auditor or the company) or to actual or potential material misstatements an auditor is reporting that ‘other than’ the specific items described, they have concluded that the financial statements are otherwise true and fair.

An ‘adverse opinion’, on the other hand, is given where the auditor concludes “on the basis of sufficient, appropriate evidence that material and pervasive misstatements exist that undermine the reliability of the financial statements as a whole”.

Where the auditor “has not been able to obtain sufficient, appropriate audit evidence to give an opinion but concludes that potential material and pervasive misstatements may exist, then they ‘disclaim’ their opinion entirely.”

The guidance sets out a clear and helpful decision tree to identify how such issues should be recorded.

Finally, the guidance identifies a number of situations in which it will be appropriate for the auditor to draw attention to ‘Key Audit Matters’ or make an ‘Emphasis of Matter’ where one or more matters have been correctly reported in the financial statements, but are, in the auditors opinion, fundamental to an understanding of them.

The updated guidance can be found at:

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