• other-technical-guidance

Beyond Auditing Requirements: A Closer Look at SSA 710

Modified Auditor’s Opinion on Prior Period Financial Statements[1]

Stakeholders of the companies, such as shareholders, potential investors, regulators and those charged with corporate governance, may rely on the auditor’s report as a source of information for their decision-making.

Where a modified auditor’s opinion was previously issued on the prior period financial statements but an unmodified report was issued in the current period on the current period financial statements, users of the financial statements may be interested to know how the prior period modification had been addressed or discharged. Does SSA 710 require this information to be disclosed?

Based on paragraph 10 of SSA 710, when corresponding figures are presented, the auditor’s opinion shall not refer to the corresponding figures, except when:

- the auditor’s report on the prior period, as previously issued, included a modified opinion and the matter giving rise to the modification is unresolved (SSA 710, paragraph 11);
- the auditor receives audit evidence that a material misstatement exists in the prior period financial statements on which an unmodified opinion has been previously issued, and the corresponding figures have not been properly restated or appropriate disclosures have not been made (SSA 710, paragraph 12); and
- the prior period financial statements were not audited (SSA 710, paragraph 14).

Furthermore, based on paragraph A3 of SSA 710, when the auditor’s report on the prior period, as previously issued, included a modified opinion and the matter which gave rise to the modified opinion is resolved and properly accounted for or disclosed in the financial statements in accordance with the applicable financial reporting framework, the auditor’s opinion on the current period need not refer to the previous modification. Hence, it appears that SSA 710 does not explicitly require disclosure on how the matters giving rise to the modified opinion in prior period financial statements had been resolved in the current period.

Notwithstanding, there is an element of public interest in relation to the current period’s auditor’s report, especially where it relates to public interest entities such as listed companies and charities. In such instances, auditors should exercise their professional judgment to assess if additional disclosures, over and above the requirements of the SSAs, on how the prior period modifications had been resolved in the current period, would be useful to the users of the financial statements and make such disclosures in an Other Matter Paragraph in the auditor’s report accordingly.

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[1] Corresponding figures are defined in paragraph 6(b) of SSA 710 as comparative information where amounts and other disclosures for the prior period are included as an integral part of the current period financial statements, and are intended to be read only in relation to the amounts and other disclosures relating to the current period.