The auditor's report: true and fair view and the ISA 700 structure

The audit report is the one place where the auditor speaks directly to the owners of the company. Everything else in the audit, the planning, the testing and the working papers, is invisible to them. The report is what they read, and what they rely on.

For years it was a short paragraph that few people understood, and that gap between what the public expected and what the auditor actually did became known as the expectation gap.

This topic covers the meaning of a true and fair view and the structure of the unmodified report under International Standard on Auditing (ISA) 700, with the Nigerian requirements. The next topics deal with key audit matters, other information, the Companies and Allied Matters Act 2020 and modified opinions.

You will be asked to describe the contents of a report, to say what each section does and to apply the going concern wording, as November 2025 Question 4(d) did.

The auditor’s report and the expectation gap

The report on the financial statements is the only direct communication between the auditor and the owners. In the past it was criticised as too brief for the general reader to understand what an audit is and what the report means. That was a major cause of the expectation gap: the public perception of the role and responsibilities of the external auditor differs from the statutory role.

The public’s expectations are often higher than the level at which the auditor operates.

Examples of misunderstanding

• The audit opinion is a “certificate” that the statements are correct and can be relied on for every decision, including takeovers.
• The auditor has a duty to prevent and detect fraud, and that is a purpose of the audit.
• The auditor tests 100% of the transactions in the period.

A consequence is a tendency in some countries to take legal action against auditors, sometimes on a weak basis, because people believe the auditor should have prevented misstatements or fraud.

Responses to the gap

• In some countries corporate governance codes have been changed to strengthen the directors’ responsibilities for sound internal control and accounting systems.
• The report is addressed to the owners of the company, not to other users.
• Some countries, such as the United Kingdom (UK), allow the auditor to add a paragraph after the opinion disclaiming liability to anyone other than the addressee. This is not currently the case in Nigeria.
• The ISAs on reports (the 700 series) were significantly revised in 2015 to make the report more informative and relevant. The revision introduced ISA 701 on key audit matters.

Electronic reporting

Many companies publish their annual reports on their websites. It is good practice for the auditor to check that the electronic version of the statements and the report is identical to the paper copy.

The meaning of true and fair

In most countries the auditor of a statutory audit must report on whether the statements give a true and fair view. In some, the opinion is whether they “present fairly, in all material respects”. The two terms have an equivalent meaning.

The phrase has not been rigorously defined by law or by the profession. The main points are:

• Deciding whether information is true and fair is more an art than a science. It relies heavily on the auditor’s judgement.
• It is best thought of as a combined phrase. True can be read as objective assurance that the information is factually without error. Fair can be read as objective assurance that the presentation and the impression given are not misleading.

True and fair will normally imply:

1. compliance with relevant legislation and accounting standards;
2. use of accurate figures or best possible estimates;
3. meaningful presentation and disclosure of information;
4. avoidance of bias, distortion and manipulation of figures; and
5. no concealment of material information.

The unmodified report

An unmodified auditor’s report contains an opinion that is not modified in any way, either by changing it to a qualified or adverse opinion or a disclaimer, or by adding an emphasis of matter or other matter paragraph after the opinion.

ISA 700 requires an unmodified opinion when the auditor concludes that the statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. If the framework is a fair presentation framework, the report says whether the statements give a true and fair view or present fairly. An unmodified opinion gives a high level of assurance that an independent professional examination has not found any material misstatement.

Reaching the opinion

The auditor evaluates whether:

• sufficient appropriate evidence has been obtained about whether the statements are free from material misstatement;
• uncorrected misstatements are material, individually or together;
• the statements are prepared in accordance with the framework and, for a fair presentation framework, give a true and fair view;
• the statements adequately describe the framework and disclose the significant accounting policies;
• the policies are appropriate and consistent with the framework;
• accounting estimates are reasonable;
• the information is relevant, reliable, comparable and understandable;
• there are adequate disclosures; and
• the terminology used is appropriate.

The fourteen elements of the report

ISA 700’s objectives are to form an opinion on the statements based on the audit evidence, and to express it clearly in a written report that also describes the basis for it.

The opinion section in more detail

For a fair presentation framework, the auditor expresses an unmodified opinion when the statements give a true and fair view or are presented fairly, in all material respects, in accordance with the framework. For a compliance framework, the opinion is that the statements have been prepared, in all material respects, in accordance with the framework. This can lead to a two-part opinion.

In the UK the report says whether the statements give a true and fair view and whether they have been properly prepared in accordance with the Companies Act 2006. Where the framework is not International Financial Reporting Standards (IFRS), the report names the jurisdiction of the framework.

In Nigeria the opinion, as a minimum, covers whether the statements:

1. present fairly, in all material respects, the financial position, financial performance and cash flows; and
2. have been properly prepared in accordance with the Financial Reporting Council of Nigeria Act No 6 of 2011 and the Companies and Allied Matters Act 2020 (section 404 and the Fifth Schedule).

For some entities, such as banks, there are extra requirements, for example compliance with Banks and Other Financial Institutions Act (BOFIA), or reporting under IFRS for listed companies.

Going concern: material uncertainty

If the going concern basis is appropriate but a material uncertainty exists, and the auditor considers the disclosure adequate, the auditor expresses an unmodified opinion and adds a section headed “Material Uncertainty Related to Going Concern”.

It draws attention to the note that describes the uncertainty, states that the events or conditions indicate a material uncertainty that may cast significant doubt on the entity’s ability to continue as a going concern. States that the opinion is not modified on the matter. Before the 2015 revision, an adequately disclosed uncertainty was dealt with in an emphasis of matter paragraph.

The separate section replaced that approach. This is the point November 2025 Question 4(d) asked for, for 7 marks. The Pathfinder solution adds that the section goes after the Basis for Opinion, that the introduction to the key audit matters section is amended to refer to it, and that if the disclosure is inadequate the opinion is qualified or adverse and there is no separate section.

Other reporting responsibilities in Nigeria

Under the Fifth Schedule of CAMA 2020 (s. 404(2)), the auditor reports whether:

1. all the information and explanations that were necessary for the audit have been obtained, to the best of the auditor’s knowledge and belief;
2. in the auditor’s opinion proper books of account have been kept, so far as appears from examining them. Proper returns adequate for the audit have been received from branches not visited; and
3. the balance sheet and profit and loss account dealt with by the report agree with the books of account and returns.

The next topic covers CAMA 2020 reporting (section 404 and the Fifth Schedule) in more detail.

Signature and date

The report is usually signed in the name of the firm, because the firm takes responsibility for the audit. In the UK it is signed by the senior statutory auditor for and on behalf of the firm. In Nigeria it must be signed by the engagement partner for and on behalf of the firm.

The date is no earlier than the date on which the auditor has sufficient appropriate evidence, and not earlier than the date on which the directors sign or approve the statements. It tells the reader that the auditor has considered the effect of subsequent events up to that date.

The syllabus example

The syllabus gives an example report addressed to the shareholders of ABC Company.

Its sections run in this order:

• Opinion (the statements audited, the statement of financial position at 31 December 20X6, the statements of comprehensive income, changes in equity and cash flows, and the notes, and the view given under IFRS)
• Basis for Opinion (ISAs, the IESBA Code and the evidence)
• Key Audit Matters, if applicable (matters of most significance in the audit of the current period, addressed in the context of the audit as a whole, with no separate opinion on them)
• Other Information, if applicable
• Responsibilities for the Financial Statements (management’s responsibilities, and going concern, with those charged with governance overseeing financial reporting)
• Auditor’s Responsibilities for the Audit (reasonable assurance, a high level of assurance but not a guarantee, fraud or error, and materiality)

The rules in more depth

Why the report has a standard structure

A standard structure lets readers find the same information in the same place in every report. A change from the standard wording, such as a qualified opinion, is easy to see. That is why modifications sit in their own sections and not inside the standard text.

Why the date matters

The date is a signal. It says the auditor has finished and has considered events up to that point. Dating the report before the directors approve the statements is a mistake, since the auditor cannot have evidence that the statements are final.

Two different opinions on one report

A fair presentation opinion and a legal compliance opinion are different tests. The first is about the picture the statements give. The second is about whether the statements comply with the law. In Nigeria both are given, which is why the opinion mentions the FRC of Nigeria Act and CAMA 2020 (the legal matters are in section 404 and the Fifth Schedule).

Worked example: spot the errors

Scenario. A draft report for Cobalt Plc, a listed Nigerian company, has these features. Find the errors.

1. The title is “Auditor’s report” and the report is addressed to the audit committee.
2. The opinion says the statements are “correct and certified”.
3. The Basis for Opinion does not mention independence.
4. The report has a note that the auditor has performed a 100% test of transactions.
5. It carries no name of the engagement partner and is signed in the name of the junior in charge.
6. It is dated 15 January, but the directors approved the statements on 20 January.

Answers. (1) The title should show that it is the report of an independent auditor, and the usual addressee is the shareholders, or the board. (2) The opinion should say that the statements give a true and fair view, or present fairly, in all material respects, in accordance with the framework, and for Nigeria that they have been properly prepared under the FRC of Nigeria Act and CAMA 2020.

“Certified” promotes the expectation gap. (3) The Basis for Opinion must state independence under the relevant ethical requirements, and that the audit evidence is sufficient and appropriate. (4) The report should say that reasonable assurance is a high level of assurance but not a guarantee, and should not claim a 100% test.

(5) A listed company’s report must name the engagement partner, and in Nigeria it must be signed by the engagement partner for and on behalf of the firm. (6) The date must not be earlier than the directors’ approval, and must not be before the evidence is complete.

How to score full marks

• Give the elements in the order in which they appear. Opinion first, then Basis for Opinion.
• Say what each element does, not just its name.
• For true and fair, give the five implications.
• Apply the Nigerian points. Two-part opinion, Fifth Schedule matters (s. 404(2) CAMA 2020), engagement partner signature.
• For going concern, name the section and its three statements.
• For the expectation gap, give examples and responses.

Common mistakes in the exam

• Putting the Basis for Opinion before the Opinion.
• Saying true and fair is defined in law.
• Using an emphasis of matter paragraph for a going concern material uncertainty. It now has its own section.
• Forgetting that key audit matters apply to listed entities.
• Forgetting the name of the engagement partner for listed companies.
• Saying that Nigerian auditors can disclaim liability to third parties in the report.

Quick revision

• Expectation gap: certificate, fraud prevention, 100% testing. Responses: director responsibilities, fuller report, 2015 ISA revision.
• True and fair: judgement, compliance, accurate figures or best estimates, meaningful presentation, no bias, no concealment.
• Unmodified opinion: framework applied in all material respects.
• Fourteen elements, with Opinion first and Basis for Opinion second.
• Nigeria: FRC of Nigeria Act and CAMA 2020, Fifth Schedule matters (s. 404(2) CAMA 2020), engagement partner signs.
• Going concern: separate section after the Basis for Opinion.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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