The auditor shall modify the opinion in the auditor’s report when: 

1. The auditor concludes that, based on the audit evidence obtained, the financial report as a whole is not free from material misstatement; or (Ref: Para. A2–A7) 
2. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial report as a whole is free from material misstatement.  (Ref: Para. A8–Aus A12.1)

Qualified Opinion

​​​​​​The auditor shall express a qualified opinion when: 

1. The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial report; or 
2. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial report of undetected misstatements, if any, could be material but not pervasive. 

Adverse Opinion

The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial report.

Disclaimer of Opinion

The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial report of undetected misstatements, if any, could be both material and pervasive.

The auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial report due to the potential interaction of the uncertainties and their possible cumulative effect on the financial report.

Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management‑Imposed Limitation after the Auditor Has Accepted the Engagement

If, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the scope of the audit that the auditor considers likely to result in the need to express a qualified opinion or to disclaim an opinion on the financial report, the auditor shall request that management remove the limitation.

If management refuses to remove the limitation referred to in paragraph 11 of this Auditing Standard, the auditor shall communicate the matter to those charged with governance, unless all of those charged with governance are involved in managing the entity,^[2] and determine whether it is possible to perform alternative procedures to obtain sufficient appropriate audit evidence. 

If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine the implications as follows: 

1. If the auditor concludes that the possible effects on the financial report of undetected misstatements, if any, could be material but not pervasive, the auditor shall qualify the opinion; or 
2. If the auditor concludes that the possible effects on the financial report of undetected misstatements, if any, could be both material and pervasive so that a qualification of the opinion would be inadequate to communicate the gravity of the situation, the auditor shall: 
   1. Withdraw from the audit, where practicable and possible under applicable law or regulation; or (Ref: Para. A13) 
   2. If withdrawal from the audit before issuing the auditor’s report is not practicable or possible, disclaim an opinion on the financial report. (Ref. Para. A14)

If the auditor withdraws as contemplated by paragraph 13(b)(i) of this Auditing Standard, before withdrawing, the auditor shall communicate to those charged with governance any matters regarding misstatements identified during the audit that would have given rise to a modification of the opinion.  (Ref: Para. A15-Aus A15.1)

Other Considerations Relating to an Adverse Opinion or Disclaimer of Opinion

When the auditor considers it necessary to express an adverse opinion or disclaim an opinion on the financial report as a whole, the auditor’s report shall not also include an unmodified opinion with respect to the same financial reporting framework on a single financial statement or one or more specific elements, accounts or items of a financial statement.  To include such an unmodified opinion in the same report^[3] in these circumstances would contradict the auditor’s adverse opinion or disclaimer of opinion on the financial report as a whole.  (Ref: Para. A16)

Auditor’s Opinion

When the auditor modifies the audit opinion, the auditor shall use the heading “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the Opinion section.  (Ref: Para. A17–A19)

Qualified Opinion

When the auditor expresses a qualified opinion due to a material misstatement in the financial report, the auditor shall state that, in the auditor’s opinion, except for the effects of the matter(s) described in the Basis for Qualified Opinion section: 

1. When reporting in accordance with a fair presentation framework, the accompanying financial report presents fairly, in all material respects (or gives a true and fair view of) […] in accordance with [the applicable financial reporting framework]; or 
2. When reporting in accordance with a compliance framework, the accompanying financial report has been prepared, in all material respects, in accordance with [the applicable financial reporting framework].  

When the modification arises from an inability to obtain sufficient appropriate audit evidence, the auditor shall use the corresponding phrase “except for the possible effects of the matter(s) ...” for the modified opinion.  (Ref: Para. A20)

Adverse Opinion

When the auditor expresses an adverse opinion, the auditor shall state that, in the auditor’s opinion, because of the significance of the matter(s) described in the Basis for Adverse Opinion section: 

1. When reporting in accordance with a fair presentation framework, the accompanying financial report does not present fairly (or give a true and fair view of) […] in accordance with [the applicable financial reporting framework]; or 
2. When reporting in accordance with a compliance framework, the accompanying financial report has not been prepared, in all material respects, in accordance with [the applicable financial reporting framework]. 

Disclaimer of Opinion

When the auditor disclaims an opinion due to an inability to obtain sufficient appropriate audit evidence, the auditor shall: 

1. State that the auditor does not express an opinion on the accompanying financial report; 
2. State that, because of the significance of the matter(s) described in the Basis for Disclaimer of Opinion section, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial report; and 
3. Amend the statement required by paragraph 24(b) of ASA 700, which indicates that the financial report has been audited, to state that the auditor was engaged to audit the financial report. 

Basis for Opinion

When the auditor modifies the opinion on the financial report, the auditor shall, in addition to the specific elements required by ASA 700: (Ref: Para. A21) 

1. Amend the heading “Basis for Opinion” required by paragraph 28 of ASA 700 to “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion,” as appropriate; and 
2. Within this section, include a description of the matter giving rise to the modification. 

If there is a material misstatement of the financial report that relates to specific amounts in the financial report (including quantitative disclosures), the auditor shall include in the Basis for Opinion section a description and quantification of the financial effects of the misstatement, unless impracticable.  If it is not practicable to quantify the financial effects, the auditor shall so state in this section.  (Ref: Para. A22)

If there is a material misstatement of the financial report that relates to qualitative disclosures, the auditor shall include in the Basis for Opinion section an explanation of how the disclosures are misstated.

If there is a material misstatement of the financial report that relates to the non‑disclosure of information required to be disclosed, the auditor shall: 

1. Discuss the non‑disclosure with those charged with governance; 
2. Describe in the Basis for Opinion section the nature of the omitted information; and 
3. Unless prohibited by law or regulation, include the omitted disclosures, provided it is practicable to do so and the auditor has obtained sufficient appropriate audit evidence about the omitted information.  (Ref: Para. A23-Aus A23.1)

If the modification results from an inability to obtain sufficient appropriate audit evidence, the auditor shall include in the Basis for Opinion section the reasons for that inability.

When the auditor expresses a qualified or adverse opinion, the auditor shall amend the statement about whether the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s opinion required by paragraph 28(d) of ASA 700 to include the word “qualified” or “adverse”, as appropriate. 

When the auditor disclaims an opinion on the financial report, the auditor’s report shall not include the elements required by paragraphs 28(b) and 28(d) of ASA 700.  Those elements are: 

1. A reference to the section of the auditor’s report where the auditor’s responsibilities are described; and 
2. A statement about whether the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.

Even if the auditor has expressed an adverse opinion or disclaimed an opinion on the financial report, the auditor shall describe in the Basis for Opinion section the reasons for any other matters of which the auditor is aware that would have required a modification to the opinion, and the effects thereof.  (Ref: Para. A24)

Description of Auditor’s Responsibilities for the Audit of the Financial Report When the Auditor Disclaims an Opinion on the Financial Report

When the auditor disclaims an opinion on the financial report due to an inability to obtain sufficient appropriate audit evidence, the auditor shall amend the description of the auditor’s responsibilities required by paragraphs 38‑40 of ASA 700 to include only the following: (Ref: Para. A25) 

1. A statement that the auditor’s responsibility is to conduct an audit of the entity’s financial report in accordance with Australian Auditing Standards  and to issue an auditor’s report; 
2. A statement that, however, because of the matter(s) described in the Basis for Disclaimer of Opinion section, the auditor was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial report; and 
3. The statement about auditor independence and other ethical responsibilities required by paragraph 28(c) of ASA 700.

Considerations When the Auditor Disclaims an Opinion on the Financial Report

Unless required by law or regulation, when the auditor disclaims an opinion on the financial report, the auditor’s report shall not include a Key Audit Matters section in accordance with ASA 701^[4] or an Other Information section in accordance with ASA 720.^[5] (Ref: Para. A26)

When the auditor expects to modify the opinion in the auditor’s report, the auditor shall communicate with those charged with governance the circumstances that led to the expected modification and the wording of the modification.  (Ref: Para. A27)