Five steps to audit report success

December 2021

Erin Morton has some top advice on scoring maximum marks in questions about the audit report.

Are you preparing for AA by practising OTQs?

Working on audit risk, controls and audit procedure questions? Bravo!

But what about the final stage of the audit process, the audit report? It’s a regular in your exam worth up to five marks. Know how to grab them.

As always, start with the requirement. An examiner’s favourite is ‘Discuss the issue and describe the impact it has on the audit report’. Analyse the scenario carefully: it has everything you need. Then grab each mark, step by step.

Mark 1 – State the issue: Maybe the financial statements are missing information? Or not following accounting standards?

Tell the examiner, even if it’s obvious.

Mark 2 – Calculate and comment on materiality: If the case has numbers, use them.

Use your materiality benchmarks: Profit (5-10%), Revenue (½-1%) and Total assets (1-2%). Which benchmark you use depends on the numbers you’re given. Then state if the calculation is material. Calculations alone score only ½ mark, so a conclusion is key.

Mark 3, 4 and 5 – What happens to the audit report?

Choose from these three approaches:

A: Disclosed correctly in the financial statements:

• Perhaps the client has disclosed the issue correctly.

Tell the marker you know, and that no modified audit opinion is needed.

• BUT, if the issue is big and there’s uncertainty OR it’s related to going concern issues, an additional audit report paragraph is added.

That’s a modification of the audit report, but not of the audit opinion.

• This paragraph needs a title (e.g. ‘Emphasis of Matter’ or ‘Material Uncertainty Related to Going Concern’) and goes below the opinion. It draws attention to the issue.

B: Material misstatement:

• Is the issue material and not correctly disclosed in the financial statements?

If so, we have a material misstatement! But is it material or material and pervasive? Pervasive means the financial statements are really misleading. The mark is earned by your justification, not just your conclusion. But you must have a conclusion.

• State there will be a modified opinion. Explain the TYPE of modified opinion: qualified (except for) or an adverse opinion. A pervasive misstatement requires an adverse opinion.

C: Lack of sufficient, appropriate evidence:

• Or there’s a lack of sufficient appropriate evidence. Again, conclude why it’s material or material and pervasive. State the consequences: qualified (except for) or disclaimer.
Phew… you’re nearly finished!

The concluding mark: If you have B or C – a modified opinion – state the ‘basis of opinion’ paragraph heading changes to ‘Basis for Qualified Opinion’, ‘Basis for Adverse Opinion’ or ‘Basis for Disclaimer of Opinion’.

This adapted paragraph explains the detail behind the modification.

Boom, you’ve nailed it! Good luck!

• Erin Morton is an ACCAAA online tutor withFMELearnOnline, and anACCA expert tutor. See