Example 2. An audit opinion containing a negative opinion due to a material misstatement of the financial statements
The circumstances of the assignment include the following:
• Audit of consolidated general purpose financial statements prepared by the management of the organization in accordance with International Financial Reporting Standards (IFRS);
• the terms of the audit assignment reflect the description of management's responsibility for the financial statements in accordance with MCA 210;
• the financial statements are significantly distorted due to the non-inclusion of the branch in the consolidation. This distortion is deemed to be distorting the financial statements as a whole. The impact of distortion on the financial statements was not determined, because it was considered impractical;
• In addition to auditing the financial statements, the auditor has other duties related to the preparation of the findings required by local law.
Independent Auditor's Report
Auditor's report on the consolidated financial statements. We have audited the accompanying financial statements of ABC, which consists of the balance sheet as of December 31, 20X1, the income statement, a report on changes in share capital, a cash flow statement for the end of the reporting year, a review of significant accounting policies and other explanatory information.
Management responsibility. Management's responsibility is to prepare and present fairly these financial statements in accordance with International Financial Reporting Standards and to maintain an internal control system that, in the opinion of management, ensures the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. These standards oblige us to plan and conduct the audit in accordance with professional ethical requirements and in such a way as to provide reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to collect audit evidence about the amounts and disclosures in the financial statements. The selection of procedures was based on the auditor's judgments, including an assessment of the risk of material misstatement in the financial statements, regardless of the reasons for their formation - fraud or error. In assessing this risk, the auditor considered the work of the internal control system responsible for the preparation and fair presentation of the company's financial statements in order to develop audit procedures appropriate to these circumstances, but not for expressing an opinion on the effectiveness of the internal control system of the organization. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates determined by the entity's management, as well as evaluating the overall presentation of the financial statements.Basis for expressing a negative opinion. As indicated in Appendix X, the company did not include in the consolidation statements of the XYZ affiliate that was joined to the company in 20X1, is not yet ready to confirm the fair value of a number of tangible assets and liabilities as of the date of accession. Therefore, this investment is recorded at cost. In accordance with IFRS, the branch must be included in the consolidation, as it is controlled by the company. If XYZ reporting were included in the consolidation, this would lead to significant changes in many elements of the consolidated financial statements. The effect of non-inclusion in consolidation was not determined.
Negative audit opinion. In our opinion, due to the importance of the issue described in the paragraph on the basis for expressing a negative opinion, the financial statements do not accurately reflect (does not give a true and in all material respects, the financial position of the company ABC and its subsidiaries as of December 31, 20X1, the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.The audit report in accordance with other requirements of the law and regulatory bodies (the form and content of this section of the audit report will vary depending on the nature of the auditor's responsibility in accordance with other requirements) .
(Signature of Auditor)
(Auditor's report date)
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