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ACCA Strategic Professional · Advanced Audit and Assurance (International)

Auditor's Reports for ACCA Advanced Audit and Assurance

The auditor's report is the formal output of the audit. It gives an opinion on the financial statements under ISA 700 and is modified under ISA 705 when there is a material misstatement or the auditor cannot get enough evidence. To solve questions, identify the issue, judge materiality and pervasiveness, then choose the opinion and wording.

What this chapter covers

This chapter covers the end product of the audit: the report the auditor signs. You start with the structure and content required by ISA 700 (Revised). Then you learn how the report changes when something is wrong: modified opinions under ISA 705, emphasis of matter and other matter paragraphs under ISA 706, key audit matters under ISA 701, and going concern reporting under ISA 570.

The chapter also covers other information (ISA 720), comparatives (ISA 710) and communication with those charged with governance (ISA 260 and ISA 265). These topics sit at the end of an audit. They depend on the evidence work you did earlier, so the chapter is where risk, evidence and conclusions come together.

In AAA you are examined in writing. Section A is a 50-mark case study and Section B has two compulsory 25-mark questions. A typical requirement gives you unresolved audit findings and asks for the effect on the audit report. Expect to explain the issue, justify the opinion and draft or describe the wording. You also need to show professional skills such as scepticism, analysis and clear communication.

Almost every audit scenario ends with a reporting decision, so this chapter can feature in any part of the exam. The marks come from reasoning: you must show why an issue is material, whether it is pervasive, and which opinion follows. Students who only memorise the opinion types lose marks because they do not apply the facts. Students who practise this chapter also gain on professional skills marks, because the same logic supports your discussion with management and those charged with governance. Careful, well-explained answers here are among the more reliable ways to earn marks.

Auditor's reports: topics in the order to study them

  1. 1Structure and Content of the Auditor's ReportYou need the standard unmodified report first, because every other topic is a change to it.
  2. 2Modified Opinions under ISA 705This is the most heavily tested decision, so learn it straight after the base report.
  3. 3Emphasis of Matter and Other Matter ParagraphsThese are added paragraphs that do not change the opinion, and you must contrast them with modifications.
  4. 4Key Audit Matters (ISA 701)KAMs build on the report structure and need you to separate them from modifications and emphasis paragraphs.
  5. 5Going Concern Reporting and Material UncertaintyThis combines your earlier knowledge of opinions and paragraphs in one common exam scenario.
  6. 6Other Information and Comparatives (ISA 720, ISA 710)These are narrower reporting points that are easier once the main report logic is secure.
  7. 7Communication with Those Charged with GovernanceThis links the audit findings to the governance dialogue, so it is best studied last as the wrap-up.

How to prepare Auditor's reports

Aim to practise decisions and wording, not just read the standards. Work in short blocks that suit a phone and a busy week.

  1. Read a full unmodified report and note each section in order, with what it is for.
  2. Build a one-page decision grid: is the issue a misstatement or a limitation, is it material, is it pervasive, and what opinion follows.
  3. Write short report extracts for each opinion type in your own words, including the basis for opinion paragraph.
  4. Practise going concern scenarios: assess management's plans, decide if a material uncertainty exists and is adequately disclosed, and choose the report effect.
  5. Do past-style questions under timed conditions and always state the issue, the effect on the opinion and the reason.
  6. Add a short explanation of each conclusion that you could give to management or those charged with governance, to practise professional skills.
  7. Review your answers and list every point you missed, then repeat the weakest topic within a week.

Common mistakes in Auditor's reports

  • Choosing the wrong opinion by ignoring pervasiveness.

    Fix: Always write two steps: is it material, then is it pervasive. Give a reason for each from the scenario facts.

  • Confusing a limitation of scope with a misstatement.

    Fix: Ask first whether the auditor disagrees with what management did, or simply cannot get evidence. Then use the matching wording: adverse or qualified for the first, disclaimer or qualified for the second.

  • Using emphasis of matter or a KAM to deal with a problem that needs a modified opinion.

    Fix: Remember that these paragraphs never replace a modification. If the financial statements are materially wrong or evidence is missing, modify the opinion.

  • Mishandling going concern reporting.

    Fix: Split the answer into three cases and state the report effect of each. Check management's plans and the disclosure before concluding.

  • Listing rules without applying them to the scenario.

    Fix: Tie each point to a figure or fact in the case, such as the amount relative to profit or total assets, and state the consequence for the report.

  • Writing vague communication points for those charged with governance.

    Fix: State what you would communicate, to whom and why, such as significant findings, misstatements and control deficiencies, and keep the tone professional and clear.

Last-day revision: Auditor's reports

  • A modified opinion arises from a material misstatement or an inability to obtain sufficient appropriate evidence.
  • Material but not pervasive gives a qualified opinion; material and pervasive gives an adverse opinion or a disclaimer.
  • A misstatement that is material and pervasive leads to an adverse opinion.
  • If you cannot obtain evidence and the possible effects are material and pervasive, you disclaim an opinion.
  • Emphasis of matter refers to a matter already properly disclosed that is fundamental to understanding; it does not modify the opinion.
  • Other matter paragraphs deal with matters not presented or disclosed in the financial statements that are relevant to users' understanding of the audit or report.
  • KAMs are matters of most significance in the audit, chosen from matters communicated to those charged with governance; ISA 701 applies to listed entity audits and where required or chosen.
  • A KAM paragraph is not a substitute for a modified opinion.
  • Material uncertainty over going concern with adequate disclosure gives an unmodified opinion with a separate section headed Material Uncertainty Related to Going Concern.
  • If a material uncertainty is not adequately disclosed, give a qualified or adverse opinion.
  • Under ISA 720, read other information and report if you find an uncorrected material misstatement of it.
  • Communicate significant findings and deficiencies in internal control to those charged with governance on a timely basis.

Auditor's reports practice questions

Auditor's reports in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Auditor's reports: frequently asked questions

How do I decide between a qualified and an adverse opinion?

Both arise from a material misstatement. If the effect is material but not pervasive, give a qualified opinion. If it is material and pervasive, give an adverse opinion. Always explain your reasoning with the facts in the scenario.

What is the difference between emphasis of matter and a key audit matter?

An emphasis of matter paragraph draws attention to a matter that is properly disclosed and fundamental to users' understanding. A key audit matter describes a matter of most significance in the audit and how you addressed it. Neither changes the opinion.

Do I need to draft full audit reports in the exam?

You may be asked to draft parts of a report, such as a basis for opinion paragraph or a key audit matter. Practise short, accurate wording rather than memorising a full report. Focus on stating the opinion and the reason clearly.

How is this chapter linked to other AAA topics?

It depends on risk assessment, evidence and completion work. The issues you find during the audit decide the report you issue. Practise tracing a finding from risk to evidence to opinion.