CA Final · Advanced Auditing, Assurance and Professional Ethics

Reporting (SA 700, SA 706, SA 720) for CA Final Advanced Auditing

Reporting is the chapter where the auditor turns audit evidence into a written opinion. You form an opinion under SA 700, structure the report by its required elements, add emphasis or other matter paragraphs under SA 706, and deal with other information under SA 720. Solve it by identifying the facts, matching the provision, and concluding.

What this chapter covers

This chapter covers the final output of an audit: the auditor's report. It starts with how the auditor forms an opinion on the financial statements, moves to the elements and format of the report, and then covers special situations. These include key audit matters, modified opinions, paragraphs that draw attention to matters, the auditor's duties on other information in the annual report, and reporting on more than one set of financial statements.

The report elements include Key Audit Matters under SA 701. SA 701 requires KAMs to be communicated in the auditor's report on a complete set of general purpose financial statements of a listed entity. KAMs may also be communicated where law or regulation requires it, or where the auditor decides to communicate them. They are not included when the auditor disclaims an opinion, unless law or regulation requires it. SA 705 (Revised) is the standard that governs modified opinions: qualified, adverse and disclaimer. It decides how the Opinion and Basis for Opinion sections change. SA 570 on going concern and SA 560 on subsequent events often supply the facts for questions in this chapter. If you are weak in those, revise them alongside this chapter.

For the topic of more than one set of financial statements, SA 700 (Revised) has a specific provision, in paragraphs 44-45. Where an entity prepares more than one set of financial statements under different general purpose frameworks and the auditor is engaged to report on each set, the auditor may issue a separate report on each set. For special-purpose frameworks, read SA 800. Check how this provision fits the report format.

The chapter also connects to the rest of the paper. Evidence from risk assessment, audit procedures, and misstatement evaluation all end up here. Case scenarios usually give you a situation, such as an unresolved misstatement, a disclosed uncertainty, or an inconsistency in the annual report, and ask what the report should say. You need to choose the right opinion, the right paragraph, and the right placement.

Reporting is predictable to examine and rewarding to prepare. Questions are application based, so you can score well by following one pattern: state the provision, apply it to the facts, and conclude on the opinion or paragraph. The chapter also supports other audit chapters, because most of them end with a reporting consequence.

Key audit matters (SA 701) and modified opinions (SA 705) are part of this reporting picture. A scenario on a listed entity can test whether you include a KAM section, and a scenario with a misstatement can test whether you modify the opinion. Clear thinking on which paragraph goes where, and when an opinion is modified, gains marks in both MCQs and written answers.

Reporting: topics in the order to study them

1SA 700 (Revised): Forming an Opinion on Financial StatementsStart with the opinion itself. Everything else in the chapter builds on how the auditor concludes and what the opinion means.
2Auditor's Report Format and Elements under SA 700Once you know how the opinion is formed, learn how it is presented: the required elements and their order.
3SA 701: Key Audit MattersKAMs must be communicated for complete general purpose financial statements of listed entities. They can also be communicated where law requires or the auditor decides to, but not when the auditor disclaims an opinion unless law requires it. Learn where the section sits and what it communicates, right after the basic format.
4SA 705 (Revised): Modified OpinionsThis shows how the report changes when the opinion is not unmodified, so study it right after the standard format and KAMs.
5SA 706 (Revised): Emphasis of Matter and Other Matter ParagraphsThese paragraphs add to an opinion without modifying it. Learn them after modifications so you can tell them apart.
6Reporting on More Than One Set of Financial StatementsParagraphs 44-45 of SA 700 (Revised) deal with this special case: where an entity prepares more than one set under different general purpose frameworks, the auditor may issue a separate report on each set. Study it once the basic report and paragraphs are clear, and refer to SA 800 for special-purpose frameworks.
7SA 720 (Revised): Responsibilities Relating to Other InformationThis standard deals with the auditor's duties on information outside the financial statements, which is a separate process from forming the opinion.
8Other Information Section in the Auditor's ReportFinish with how SA 720 duties appear in the report, linking the standard back to the report format.

How to prepare Reporting

Prepare this chapter by building one clear picture of the report and then practising scenarios against it.

Read the standards in the order given above. For each, write down in your own words what the auditor must do and what the report must say.
Draw a one-page layout of the auditor's report with its sections in order, including the Key Audit Matters section. Redraw it from memory until you can do it without errors.
Make a short decision list for opinions under SA 705: when each type applies, and what changes in the report. Cover both the opinion paragraph and the basis paragraph.
Make a separate comparison of Emphasis of Matter and Other Matter paragraphs: purpose, condition, and placement. Practise telling them apart on short facts.
For SA 720, list the auditor's steps on reading other information, and the actions when a material inconsistency or misstatement is found. Link these to what the report states.
Solve case scenarios in the provision-facts-conclusion form. Write the rule, apply the facts given, and state the conclusion on the opinion or paragraph in one line.
Attempt MCQs without fear of negative marking, but always give a reason for your choice. Review wrong answers to find which provision you missed.

Common mistakes in Reporting

Treating an Emphasis of Matter paragraph as a way to qualify the opinion.
Fix: Remember that the paragraph only draws attention to a properly disclosed matter. If the matter is not adequately disclosed, the issue is a modification, not an emphasis.
Mixing up Emphasis of Matter and Other Matter paragraphs.
Fix: Ask one question: is the matter presented or disclosed in the financial statements? If yes, it is Emphasis of Matter. If no, and it is relevant to the audit or report, it is Other Matter.
Writing the report elements in the wrong order or leaving out headings.
Fix: Learn the sequence as a flow from title and addressee to opinion, basis, responsibilities and signature. Practise drawing it.
Giving a conclusion without the provision and the facts.
Fix: Write three short parts: the rule, the facts from the case, and the conclusion. This earns marks even when the final choice is arguable.
Ignoring SA 720 duties on other information because it is outside the financial statements.
Fix: Treat it as a separate process with its own steps and its own report section. Practise what the auditor does on finding a material inconsistency.
Forgetting the link with other standards, such as going concern or subsequent events, in a case scenario.
Fix: When a case includes uncertainty, a later event, or a disclosure issue, ask which other standard applies and how it changes the report.

Last-day revision: Reporting

The auditor forms an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
The report opens with the title and addressee, followed by the Opinion section and then the Basis for Opinion section.
Section order and headings in the report should follow SA 700 so that the report is easily recognised.
A modified opinion changes the opinion and basis paragraphs; the basis paragraph explains the reason.
Key Audit Matters under SA 701 are required in the report on complete general purpose financial statements of listed entities. They may also be communicated where law requires or the auditor decides to. They are not included when the auditor disclaims an opinion, unless law requires it.
An Emphasis of Matter paragraph refers to a matter already presented or disclosed in the financial statements that is fundamental to users' understanding.
An Other Matter paragraph refers to a matter not presented or disclosed in the financial statements that is relevant to users' understanding of the audit, the auditor's responsibilities, or the report.
Neither an Emphasis of Matter nor an Other Matter paragraph modifies the opinion.
Under SA 720, the auditor reads the other information and considers whether it is materially inconsistent with the financial statements or the auditor's knowledge.
If there is a material misstatement of the other information, the auditor asks management to correct it and takes further action if it is not corrected.
The Other Information section of the report describes the other information, the auditor's responsibility, and the outcome of the work.
Paragraphs 44-45 of SA 700 (Revised) address more than one set of financial statements: where an entity prepares sets under different general purpose frameworks, the auditor may issue a separate report on each set. For special-purpose frameworks, refer to SA 800.
In a case question, always state the provision, the fact, and the conclusion.

Reporting practice questions

Reporting in other exams

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

Reporting: frequently asked questions

Which standards does the Reporting chapter cover?

It covers SA 700 (Revised) on forming an opinion and the report format, SA 701 on key audit matters, SA 705 (Revised) on modified opinions, SA 706 (Revised) on Emphasis of Matter and Other Matter paragraphs, and SA 720 (Revised) on other information. It also covers reporting on more than one set of financial statements. Paragraphs 44-45 of SA 700 (Revised) allow a separate report on each set, and SA 800 deals with special-purpose frameworks.

How is Reporting tested in the exam?

Expect case scenarios in MCQs and short written answers where you decide the opinion or the paragraph required. Answer in provision-facts-conclusion form so that your reasoning is visible.

Should I learn SA 705 and SA 701 with this chapter?

Yes. SA 705 governs modified opinions. SA 701 requires a Key Audit Matters section in the report on complete general purpose financial statements of listed entities. KAMs may also be communicated where law requires or the auditor decides to, but not when the auditor disclaims an opinion unless law requires it. Learning them together helps you answer scenarios that cross standards.

Is it enough to memorise the report format?

No. The format helps with recall, but marks come from applying the rules to a case. Practise scenarios so that you can say what the report should contain and why.