This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members understand the key elements of audit reports under International Standards on Auditing (UK) (ISAs (UK)). This helpsheet covers entities that are not public interest entities and entities that do not voluntarily apply the Corporate Governance Code.

Members may also wish to refer to the following related helpsheets and guidance:

• Audit reports - modified opinions, emphasis of matter and other matter paragraphs
• Audit reports – going concern
• Auditing micro-entities
• Prior year unaudited – Audit report implications
• Audit and Assurance Faculty guides
• International Standards on Auditing (UK) (ISAs (UK))

ISA (UK) 700 (Revised November 2019) Forming an Opinion and Reporting on Financial Statements contains the format for audit reports

Illustrative audit reports for companies can be found in the FRC Bulletin: Illustrative Auditor’s Reports for periods commencing on or after 15 December 2019 (for periods commencing before 15 December 2019, see FRC Bulletin: Compendium of illustrative auditor’s reports). For industry and scenario specific guidance, see Audit and Assurance Faculty guides. These include guidance on preparing audit reports for LLPs, Charities, groups, pension schemes and micro entities, as well as issuing modified opinions. Guidance on managing the risk to third parties when issuing audit reports can be found in TECH 01/03 AAF (Revised) The Audit Report and Auditors’ Duty of Care to Third Parties.

The audit report is usually quite lengthy, so each of the following sections describes the requirements of ISA (UK) 700 (Revised 2019) that the auditor must follow when producing their audit report. This helpsheet assumes that the auditor is not required to report on, and has not decided to voluntarily include, key audit matters.

Opinion

Paragraph 6 of ISA (UK) 700 (Revised 2019) states that the objectives of the auditor are:

• To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and
• To express clearly that opinion through a written report. 

The auditor needs to determine whether the financial statements are free from material misstatement and therefore whether they can issue an unmodified audit opinion or whether a modified audit opinion is required. For further guidance on modifying the audit opinion, see helpsheet Audit reports – modified opinions, emphasis of matter and other matter paragraphs.

The opinion is the first section of the audit report and is covered by paragraphs 23 – 27 of ISA (UK) 700 (Revised 2019).

Basis for opinion

Paragraph 28 of ISA (UK) 700 (Revised 2019) requires every audit report to include a “Basis for Opinion” section, directly following the Opinion section. This is required regardless of whether the audit opinion is unmodified or modified.

Conclusions relating to going concern

Where the auditor concludes that use of the going concern basis is appropriate and no material uncertainty has been identified, ISA (UK) 570 (Revised September 2019) Going concern requires that the auditor’s report must contain a section on going concern. For further guidance on this see our helpsheet Audit reports – going concern.

Other information

ISA (UK) 720 (Revised November 2019) The Auditor’s Responsibilities Relating to Other Information requires the inclusion of an “Other information” section either where statutory other information is required under legislation, for example a directors’ report or strategic report for a company, or where the entity chooses to include additional non-statutory information, for example a members’ report for an LLP. Further information in respect of the “Other information” section can be found in paragraph 22 of the FRC Bulletin: Illustrative Auditor’s Reports.

Opinion on other matters prescribed by the Companies Act 2006

Section 496 of the Companies Act 2006 requires the auditor to report on the consistency of the directors’ report, and strategic report where one is prepared, with the financial statements and also to make a judgement as to whether the directors’ report and strategic report, if applicable, comply with law. These requirements are contained in ISA (UK) 720 (Revised 2019) paragraph A53-4.

Where the entity is not required under law to prepare a directors’ report or strategic report, there is no requirement for the auditor to report on any such reports that have been voluntarily included in the annual report. For further information, refer to the Audit and Assurance Faculty guides and select the guide that is relevant to the type of entity you are auditing.

Matters on which we are required to report by exception

Paragraph 43-1 of ISA (UK) 700 (Revised 2019) requires the auditor to report on specific matters by exception in certain circumstances. This section is required where the relevant legislation requires the auditor to report, by exception, on specified matters and needs to be tailored to the legal requirements.

For example, for company audits, the auditor must report by exception in accordance with section 498 of the Companies Act 2006 in relation to the adequacy of accounting records, their agreement to the financial statements, the disclosure of directors’ remuneration (where applicable), the receipt of required information and explanations and, where appropriate, entitlement to the use of the small companies regime. These are in addition to the requirements under section 496 requiring the auditor to state whether the directors’ report (and strategic report where prepared) are materially misstated.

Responsibilities of directors

Paragraphs 33 – 36 of ISA (UK) 700 (Revised 2019) require the auditor to include a section in their auditor’s report describing the various responsibilities those charged with governance have in the preparation of the financial statements and assessing the entity’s ability to continue as a going concern.

Auditor’s Responsibilities for the audit of the financial statements

Paragraphs 37 – 40 of ISA (UK) 700 (Revised 2019) require the auditor to describe their responsibilities in relation to the audit of the financial statements. Paragraphs 41 and 42 give various options as to how the auditor might include such responsibilities, either directly in the audit report, as a separate appendix to the audit report or as a website link. Given the lengthy wording of the auditor’s responsibilities section, it is commonplace to include a link to the FRC’s website - https://www.frc.org.uk/auditorsresponsibilities.

For periods beginning on or after 15 December 2019, paragraph 29-1 of ISA (UK) 700 (Revised November 2019) introduced a new requirement applicable to all entities requiring the auditor to report on the extent to which the audit was considered capable of detecting irregularities, including fraud. Previously, this was only required for public interest entities. The auditor needs to consider how this is tailored to each entity’s individual circumstances. The location of this explanation in the FRC Bulletin: Illustrative Auditor’s Reports is within the auditor’s responsibilities section. For further information, see How to report on irregularities, including fraud, in the auditor’s report – a guide for auditors.

Use of our report

As described in paragraph 10 of TECH 01/03 AAF (Revised) The Audit Report and Auditors’ Duty of Care to Third Parties, the final section of the audit report, directly preceding the auditor’s signature, should be where the Bannerman paragraph is located. It should be a separate section, titled “Use of our report”.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.