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The alternative opinions for the audit report under ISA 700 are adequate to cover all likely eventualities

Explain the reporting options available.

Introduction: Recent Implications

ISA 700 auditing standards (hereafter may be alternatively referred to as The Standard) have gained supreme prominence in recent times as more auditors and management(s) are held responsible for the spectacular collapse of conglomerates. Two cases highlight the have been Parmalat collapse in Italy and the recent collapse of world's largest futures and options trader Refco. In both cases the senior management functionaries have been held responsible for fraud and auditors have been held accountable for failing to detect the accounting problems, Refco problems date as far back as 1998 (refer footnote 1). The auditors in both cases face(d) considerable public outcry not to mention public interest litigation for failure to do their duty.

 

While this would seem to "cover all likely eventualities", there the ISA 700 in its current form has raised a few questions from the accountants and the auditors. The Base Committee itself has expressed a further amendment to the standard in the following areas:

While the financial statements need to specify the management's responsibilities as well as the auditors, it must also be clearly states that these responsibilities vis-à-vis financial statements are summary of management responsibility and represent only a part of the overall responsibility as detailed in the management report.While providing flexibility, the guidelines still need to specify "other reporting responsibilities" to distinguish them from legal and regulatory responsibilities

The most important is the communication of any shortcomings in internal controls and the Basel Committee would like it included in the report and communicated to the management of the audited entity. While a lot of discussion material is available in the public domain regarding ISA 700, a lot of it tends to deal with the format such as "…Consequently, the use of sub-headings is not necessarily required. However, we understand that the sub-headings will highlight modifications or emphasis of matter paragraph. We will not object the use of sub-headings" Japanese Institute of Certified Public Accountants 2005; presentation and other such aspects of the report and is not material to this discussion. However, it is interesting to note that there is a great emphasis to make the general reader aware of the limitations of an audit and an auditor's opinion. The ACCA (2004), following the desire to emphasize such limitations agree that all audit reports under ISA 700 must include the disclaimer "Further, an audit opinion does not assure the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs of the entity". They go on to recommend that all reference to "reasonable assurance" be replaced by "reasonable but not absolute assurance" implying that the even the ACCA are sure that the alternative opinions under the ISA would leave scope for errors of commission or omission and is fallible.

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