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CA Intermediate · Auditing and Ethics

Audit Report for CA Intermediate: Study Guide

The audit report is the auditor's written opinion on whether financial statements give a true and fair view or are presented fairly. To solve questions, identify the facts, decide if the issue is material and pervasive, pick the right opinion or paragraph under the SA, and state the reason in the report format.

What this chapter covers

This chapter is about the end product of an audit: the auditor's report. It covers what the report must contain (SA 700), how the opinion changes when there is a misstatement or a limitation on scope (SA 705), and when you add extra paragraphs that do not change the opinion (SA 706 and SA 701). It also covers how the auditor treats other information (SA 720 (Revised)), comparatives (SA 710) and going concern (SA 570 (Revised)), and the extra reporting that the Companies Act, 2013 and CARO 2020 require.

The chapter ties together the rest of the paper. Audit evidence, risk assessment, internal control, written representations and the audit of companies all feed into one decision: what opinion do you sign? Questions often start with a short fact pattern from these earlier chapters and end with "what is the effect on the audit report?". If you know the report well, you can answer those links quickly.

The chapter also connects to Ethics. A wrong or unsupported report is a professional misconduct risk, so scenario questions can mix reporting with the Code of Ethics and the Chartered Accountants Act. Treat this chapter as the place where your earlier learning is tested in decision form.

This chapter is scenario-heavy and decision-based, which suits both the 30 marks of MCQs and the 70 marks of written answers. MCQs usually test one clean rule, such as which opinion fits a given situation, and need no reasoning. Written questions ask you to name the opinion, justify it and sometimes draft the paragraph. The rules are finite and repeat across questions, so the effort you put in is rewarded with reliable marks. It also lifts your answers in other chapters, because you learn to think in terms of what the auditor finally reports.

Audit Report: topics in the order to study them

  1. 1Basic Elements of the Auditor's Report (SA 700)Start here because it gives you the standard report structure that every other topic modifies or adds to.
  2. 2Types of Audit Opinions: Unmodified and Modified (SA 705)Next, since the opinion is the core of the report and this is the most tested decision in the chapter.
  3. 3Emphasis of Matter and Other Matter Paragraphs (SA 706)Learn it right after SA 705 so you can clearly separate paragraphs that leave the opinion unchanged from those that modify it.
  4. 4Key Audit Matters (SA 701)It builds on the report structure and is often confused with emphasis of matter, so study it after SA 706.
  5. 5Other Information (SA 720 (Revised)), Comparatives (SA 710) and Going Concern (SA 570 (Revised)) in ReportsThese are specific situations that change what you write, so they come once the basic report and opinion types are firm. Link other information to SA 720 (Revised), comparatives to SA 710, and going concern to SA 570 (Revised) with its separate section, Material Uncertainty Related to Going Concern.
  6. 6Reporting under Companies Act: Section 143 and CARO 2020Finish with statutory reporting, which adds company-specific duties on top of the standard report.

How to prepare Audit Report

Prepare this chapter as a set of decisions backed by a fixed format, not as a chapter to memorise line by line.

  1. Read the SA 700 report format once and learn the order of its parts: title, addressee, Opinion, Basis for Opinion, then (where relevant) Material Uncertainty Related to Going Concern, Key Audit Matters and Emphasis of Matter or Other Matter paragraphs, then Other Information, responsibilities of management and those charged with governance, the auditor's responsibilities, Report on Other Legal and Regulatory Requirements, and finally the signature, membership number, place and date.
  2. Build a one-page grid for SA 705 with two questions: is the matter material, and is it pervasive? Then separately mark whether the problem is a misstatement or an inability to obtain evidence. Map each combination to qualified, adverse or disclaimer.
  3. Make a second grid comparing KAM, Emphasis of Matter and Other Matter: purpose, who decides, effect on opinion and where it sits in the report.
  4. Learn the going concern (SA 570 (Revised)), comparatives and other information rules as short if-then statements, and attach one example to each.
  5. List the main Section 143 duties and the broad areas of CARO 2020 as headings with a few trigger words, so you can recall them under time pressure.
  6. Practise MCQs on opinion selection first, then write three or four full answers in the format: facts, issue, standard, conclusion and effect on the report.
  7. Revisit your grids in the last week and test yourself by covering the answer column.

Common mistakes in Audit Report

  • Mixing up qualified and adverse opinions by looking only at the amount involved.

    Fix: Always ask two questions in order: is it material, and is it pervasive? State both in your answer.

  • Giving a disclaimer for a misstatement or an adverse opinion for a scope limitation.

    Fix: First classify the problem as disagreement or inability to get evidence, then choose the opinion.

  • Treating Emphasis of Matter as a way to soften a qualification.

    Fix: Remember that SA 706 paragraphs never change the opinion. If the disclosure is inadequate, modify the opinion instead.

  • Confusing Key Audit Matters with Emphasis of Matter.

    Fix: Link KAM to the auditor's own judgement of most significant matters in the audit, and EOM to a matter fundamental to understanding the financial statements.

  • Writing long theory answers without a conclusion on the report.

    Fix: End every scenario answer with a clear line stating the opinion or paragraph and where it appears in the report.

  • Skipping CARO 2020 and Section 143 because they look like lists.

    Fix: Learn the main headings and their trigger situations, then practise with short scenarios so the lists turn into usable recall.

Last-day revision: Audit Report

  • The report has a title and an addressee (as required by the engagement terms), then the Opinion section, followed by Basis for Opinion.
  • Unmodified opinion means the financial statements are prepared, in all material respects, in accordance with the applicable framework.
  • Modified opinions are qualified, adverse and disclaimer.
  • Material but not pervasive misstatement leads to a qualified opinion (except for).
  • Material and pervasive misstatement leads to an adverse opinion.
  • Inability to get sufficient appropriate evidence: material but not pervasive gives qualified; material and pervasive gives disclaimer.
  • Emphasis of Matter refers to a matter already properly disclosed that is fundamental to users' understanding; it does not modify the opinion.
  • Other Matter paragraph refers to a matter other than those presented or disclosed in the financial statements that, in the auditor's judgement, is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report.
  • Key Audit Matters are those of most significance in the audit. SA 701 applies to audits of listed entities, and to other cases where the auditor decides, or law or regulation requires, KAMs to be communicated. They are not a substitute for a modified opinion.
  • Under SA 570 (Revised), if use of the going concern basis is appropriate but a material uncertainty exists and is adequately disclosed, the opinion is unmodified with a separate section headed 'Material Uncertainty Related to Going Concern'.
  • If a material uncertainty is not adequately disclosed, the auditor gives a qualified or adverse opinion.
  • Section 143 and CARO 2020 add statutory reporting for companies. CARO 2020 applies to all companies, including foreign companies, except banking companies, insurance companies, One Person Companies and small companies. These exemptions for OPCs and small companies are separate from the private company test below. Section 8 companies get no blanket exemption: like private companies, they are exempt only if they stay within the limits below, and must report if they exceed them. A private company is exempt only if ALL these conditions are met together: it is not a holding or subsidiary company of a public company, its paid-up capital and reserves are not above ₹1 crore, its borrowings from banks or financial institutions are not above ₹1 crore at any time in the year, and its total revenue as disclosed in Schedule III (including other income) is not above ₹10 crore. If any one condition fails, CARO 2020 applies.

Audit Report practice questions

Audit Report in other exams

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

Audit Report: frequently asked questions

Which topic in the Audit Report chapter should I study first?

Start with SA 700, the basic elements of the report. It gives you the structure that SA 705, 706 and 701 change or add to, so the later topics are easier.

How do I choose between qualified, adverse and disclaimer in MCQs?

Check the cause and the effect. If it is a disagreement, material gives qualified and material and pervasive gives adverse. If the auditor cannot get evidence, material gives qualified and material and pervasive gives disclaimer.

Is Emphasis of Matter the same as Key Audit Matters?

No. Emphasis of Matter draws attention to a matter already properly disclosed that is fundamental to understanding the financial statements. Key Audit Matters describe the matters of most significance in the audit, based on the auditor's judgement.

How should I write a descriptive answer on audit opinion?

Write the facts, state whether the matter is material and pervasive, name the relevant SA, give the opinion, and mention how the report changes. This format earns step marks even if one part is imperfect.