SA 700 (Revised): How to Form an Unmodified Opinion and Structure the Auditor’s Report

An unmodified audit report is not produced simply because the trial balance agrees or no large adjustment remains open. Under SA 700 (Revised), the auditor first evaluates the financial statements as a whole, concludes whether they are prepared in all material respects in accordance with the applicable financial reporting framework, and only then expresses the opinion through a structured written report.

ICAI currently lists Revised SA 700 in its Engagement and Quality Control Standards repository. The detailed requirements are in the official SA 700 (Revised) text, which applies to audits of financial statements for periods beginning on or after 1 April 2018.

What SA 700 is trying to achieve

SA 700 has two connected objectives: form an opinion based on the conclusions drawn from the audit evidence obtained, and express that opinion clearly in a written report. That means report drafting is the final expression of the audit conclusion, not a substitute for the work needed to reach it.

An unmodified opinion is appropriate when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. If the auditor concludes that the statements are materially misstated, or cannot obtain sufficient appropriate audit evidence to conclude that they are free from material misstatement, the reporting question moves to SA 705 (Revised).

Step 1: complete the financial-statement-level evaluation

Before deciding that an unmodified opinion is appropriate, the auditor evaluates more than whether individual balances passed testing. SA 700 requires consideration of the financial statements as a whole. This includes whether significant accounting policies are adequately disclosed and appropriate, accounting estimates are reasonable, and the information presented is relevant, reliable, comparable and understandable.

The auditor also evaluates whether disclosures enable users to understand the effect of material transactions and events, whether terminology and statement titles are appropriate, and whether the financial statements adequately refer to or describe the applicable financial reporting framework. Where a fair presentation framework applies, the auditor additionally considers the overall presentation, structure and content and whether the statements, including the notes, represent the underlying transactions and events in a manner that achieves fair presentation.

Step 2: connect the opinion to evidence and uncorrected misstatements

The opinion conclusion should reconcile to the completion file. SA 700 directs the auditor to take into account whether sufficient appropriate audit evidence has been obtained and whether uncorrected misstatements are material, individually or in aggregate. This creates a practical completion test: the proposed opinion should be consistent with the evidence obtained, unresolved audit differences and the final financial statements actually being signed.

Worked example

Assume the audit team has completed testing and obtained sufficient appropriate evidence. Management corrected all material identified misstatements, the remaining uncorrected differences are not material individually or in aggregate, significant accounting policies and estimates are acceptable, and the notes adequately explain material transactions. If the financial statements otherwise comply with the applicable framework and achieve fair presentation where required, the fact pattern supports an unmodified opinion. By contrast, a material unresolved accounting error or a material evidence limitation requires evaluation under SA 705 rather than cosmetic changes to the wording of an unmodified report.

Step 3: build the report in the required sequence

SA 700 requires the auditor's report to be in writing and to have a title clearly indicating that it is the report of an independent auditor. The report is addressed as appropriate for the engagement. Importantly, the Opinion section comes first.

The Opinion section identifies the entity, states that the financial statements have been audited, identifies each statement comprising the financial statements, refers to the notes including the summary of significant accounting policies, and specifies the date or period covered. For a fair presentation framework, an unmodified opinion uses the prescribed concept that the statements present fairly, in all material respects, or give a true and fair view, in accordance with the applicable reporting framework.

Immediately after Opinion, the report contains a Basis for Opinion section. It states that the audit was conducted in accordance with Standards on Auditing, refers to the section describing the auditor's responsibilities, addresses independence and other ethical responsibilities with reference to ICAI's Code of Ethics, and states whether the auditor believes the audit evidence obtained is sufficient and appropriate to provide a basis for the opinion.

Step 4: add the sections that apply to the engagement

SA 700 is the reporting backbone, but it works with other standards. Where applicable, going-concern reporting follows SA 570 (Revised). For complete sets of general purpose financial statements of listed entities, key audit matters are communicated under SA 701. Other information is dealt with under SA 720 (Revised) where applicable. The report also contains sections describing management's responsibilities for the financial statements and the auditor's responsibilities for the audit.

The management-responsibility section explains responsibility for preparing the financial statements under the applicable framework, relevant internal control, and assessment of the entity's ability to continue as a going concern. The auditor-responsibility section explains, among other matters, that reasonable assurance is a high level of assurance but not a guarantee that every material misstatement will always be detected, and describes the risk-based nature of the audit.

Practical SA 700 completion checklist

1. Lock the final financial statements: confirm the version being reported on agrees with the audited final numbers and notes.
2. Close the evidence question: document whether sufficient appropriate audit evidence has been obtained for material areas.
3. Review uncorrected differences: evaluate them individually and in aggregate before deciding the form of opinion.
4. Evaluate presentation and disclosures: do not restrict completion review to recognition and measurement.
5. Confirm the reporting framework: make sure the opinion correctly identifies the applicable framework and uses appropriate wording.
6. Start with Opinion: verify the entity, statements, notes and reporting period identified in that section.
7. Check Basis for Opinion: confirm the SA compliance, independence, ethics and evidence statements are appropriate.
8. Map linked reporting standards: consider SA 570, SA 701, SA 705, SA 706 and SA 720 wherever their circumstances arise.
9. Check legal additions separately: identify any reporting requirements imposed by the law or regulation governing the engagement rather than assuming SA 700 is the only source of report content.
10. Cross-reference the file: ensure the final report conclusion is traceable to completion memoranda, misstatement evaluation and key reporting judgments.

Common mistakes to avoid

• Starting with a prior-year report template before deciding whether the current-year opinion is actually supportable.
• Focusing only on numerical misstatements and overlooking inadequate or misleading disclosures.
• Treating an unmodified opinion as proof that every transaction is correct or every fraud has been detected.
• Using an Emphasis of Matter or another reporting section to avoid a modification that is required under SA 705.
• Leaving the applicable financial reporting framework, statement titles or reporting period inconsistent with the final financial statements.
• Assuming the standard report can be copied unchanged when another SA or applicable law creates additional reporting requirements.

Practical takeaway

SA 700 is best used as a completion framework rather than a report-writing template. First decide whether the evidence, uncorrected misstatements, accounting choices, estimates, disclosures and overall presentation support an unmodified opinion. Then build the written report in the required structure, starting with Opinion and Basis for Opinion and adding the responsibility and other applicable sections. A well-prepared report should be the visible end of a documented audit conclusion, not a document created independently of it.