## **Learning Outcomes**

After reading this article, you will be able to describe the required structure and essential contents of an independent auditor’s report according to audit standards. You will be able to identify each component of an unmodified opinion report, explain their purpose, and distinguish when and how an auditor expresses an unmodified opinion on financial statements.

## **ACCA Foundations in Audit (FAU) Syllabus**

For ACCA Foundations in Audit (FAU), you are required to understand the format and content of the auditor’s report and the implications of different forms of audit opinion. Focus your revision on being able to:

- State the main requirements for the form and content of an independent auditor’s report
- List and explain the sections included in an auditor’s report with an unmodified opinion
- Recognise the terminology used in auditor’s reports, including ‘true and fair view’ and ‘reasonable assurance’
- Identify management and auditor responsibilities as described in the report
- Understand the meaning and significance of an unmodified (unqualified) audit opinion

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which section of the auditor’s report describes the auditor’s independence and scope of work?
   a) Opinion
   b) Basis for Opinion
   c) Management Responsibilities
   d) Key Audit Matters

2. An ‘unmodified’ audit opinion means that:
   a) The auditor is unsure of the truth and fairness of the statements
   b) The auditor has identified fraud
   c) The financial statements present fairly in all material respects
   d) The auditor is relying on internal control

3. Who holds primary responsibility for preparing financial statements, as described in the auditor’s report?

4. State two purposes of the ‘Basis for Opinion’ section in the independent auditor’s report.

## **Introduction**

The independent auditor’s report is the auditor’s formal communication to the users of financial statements—most commonly the shareholders—regarding whether the company’s financial statements give a true and fair view. Consistent structure and wording are required by International Standards on Auditing (ISAs) to ensure clarity and comparability. Understanding the form and content of an unmodified report, where the auditor is satisfied with the financial statements, is essential for the ACCA FAU exam.

> **Key Term: independent auditor’s report**
> A formal written statement issued by an external auditor stating their opinion on whether an entity’s financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

## **FORM AND STANDARD CONTENT OF THE INDEPENDENT AUDITOR’S REPORT**

The content and formatting of the auditor’s report are determined by ISA 700. All key elements must appear in the required order. The main sections are:

- **Title**: Always contains the phrase ‘Independent Auditor’s Report’ to show objectivity.
- **Addressee**: Specifies to whom the report is directed, typically the shareholders.
- **Opinion**: Clearly states the auditor’s conclusion about whether the financial statements are true and fair (or ‘present fairly, in all material respects’) according to the relevant financial reporting framework.
- **Basis for Opinion**: Describes the auditing standards followed, confirms auditor independence, outlines the audit scope, and confirms sufficient evidence was obtained to support the opinion.
- **Responsibilities of Management and Those Charged with Governance**: Summarises the directors’ duty for preparing statements and implementing sound internal controls.
- **Auditor’s Responsibilities for the Audit of the Financial Statements**: Explains the objective of the audit, the concept of reasonable assurance, and summarises key aspects of the auditor’s work.
- **Signature, Name, Address, and Date**: Identifies the signing firm/person, location and the date as of audit completion.

### Standard Unmodified Opinion (Overview of Content)

The unmodified, or ‘clean’, auditor’s report structure should follow this outline:

1. **Title**: ‘Independent Auditor’s Report to the Shareholders of [Company Name]’
2. **Opinion**: For example, “In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of [Company], and its financial performance and cash flows for the year then ended, in accordance with [applicable framework].”
3. **Basis for Opinion**: Refers to ISAs, affirms independence, and confirms sufficient appropriate audit evidence.
4. **Responsibilities of Management**: Describes management’s responsibilities for preparation and fair presentation, internal controls, and assessing going concern.
5. **Auditor Responsibilities**: Summarises the auditor’s work and responsibilities, including providing reasonable assurance.
6. **Signature, Address, Date**: The auditor/firm signs, provides address, and dates the report.

> **Key Term: unmodified opinion**
> The audit conclusion expressed when the auditor determines the financial statements are prepared, in all material respects, in accordance with the applicable framework—no reservations or modifications.
>
> **Key Term: true and fair view**
> A requirement that financial statements present reliable, neutral, and complete information to users, fairly reflecting the company’s financial position and performance.
>
> **Key Term: reasonable assurance**
> A high, but not absolute, level of assurance obtained by the auditor that the financial statements are free from material misstatement.

## **DETAILED SECTIONAL EXPLANATION**

### Title and Addressee

The title must make clear the report’s independence. The addressee—shareholders, board or other relevant body—is specified near the start.

### Opinion Section

This is the core of the report—it explicitly communicates the auditor’s conclusion. It refers to the specific entity, date, and financial reporting framework (e.g., IFRS or national GAAP). Only use ‘unmodified’ language if no material misstatements or scope limitations were found.

### Basis for Opinion

Here, the auditor confirms compliance with ISAs (or relevant standards), independence, and the sufficiency and appropriateness of the audit evidence obtained to support their opinion. Any emphasis of matter or explanation of the audit approach would appear here if necessary.

### Responsibilities of Management and Those Charged with Governance

This section outlines managers’ and directors’ responsibilities for preparing the financial statements, establishing proper internal controls, selecting appropriate accounting policies, and assessing the entity’s ability to continue as a going concern.

### Auditor’s Responsibilities

This section states that the auditor is responsible for expressing an opinion based on the audit, describes the audit process, explains that reasonable (not absolute) assurance has been provided, and acknowledges the inherent limits of an audit (possibility of undetected misstatement or fraud).

### Signature, Name, Date

The report is signed and dated upon completion. The signature may be the firm’s name or the engagement partner’s, as allowed by local rules.

### **Worked Example 1.1**

**You are provided with the draft financial statements of Omega Ltd. The audit is complete, and you have found no material errors or limitation in scope. What is your reporting obligation, and what type of opinion should you issue?**

> **Answer:**
>
> - The auditor should issue an unmodified (clean) opinion, using standard required language as shown in ISA 700. The report must contain all required sections in the correct order, addressed to shareholders, and state that in the auditor’s opinion the statements present fairly, in all material respects (or give a true and fair view), in accordance with the applicable framework.

### **Worked Example 1.2**

**During your audit of Sigma plc, you note that the board wishes you to address the auditor’s report to the directors only, not the shareholders. Is this correct?**

> **Answer:**
>
> - No. Standard auditor’s reports are typically addressed to the company’s members (shareholders), since they are the primary users and appoint the auditor. The report should not be addressed solely to directors unless local legal/regulatory requirements state otherwise.

### **Exam Warning**

> Remember: an unmodified opinion does not guarantee absolute accuracy or that all fraud has been found. The auditor provides only reasonable assurance based on sufficient appropriate audit evidence.

## **Summary**

The independent auditor’s report is the main outcome of the external audit process, communicating the auditor’s professional opinion to users of the financial statements. The unmodified opinion is the standard report when the auditor concludes the statements are materially free from misstatement. Strict structure and content requirements apply to ensure clarity, comparability, and compliance with ISAs.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- List and explain each main section of the independent auditor’s report
- State the meaning and use of an unmodified opinion
- Outline the required statements regarding management and auditor responsibilities
- Define ‘true and fair view’ and ‘reasonable assurance’
- Recognise to whom the auditor’s report is addressed
- Identify when an auditor should issue a standard, unmodified opinion

## **Key Terms and Concepts**

- independent auditor’s report
- unmodified opinion
- true and fair view
- reasonable assurance

Independent Auditor’s Report - Form and content including unmodified opinion