ACCA Advanced Audit and Assurance (AAA) Practice Exam

What does the basis of opinion explain in an auditor's report?

1. The auditor's decision to issue a qualified opinion

2. The audit's adherence to the International Standards on Auditing

3. The detailed processes for preparing the financial statements

4. The historical performance of the entity being audited

The correct answer is: The audit's adherence to the International Standards on Auditing

The basis of opinion in an auditor's report provides an explanation of how the auditor arrived at their opinion regarding the financial statements. Specifically, it outlines the auditor's adherence to the International Standards on Auditing (ISAs), which sets the framework for conducting the audit. This section includes details about the audit procedures performed, the scope of the audit, and the reasoning behind the auditor's conclusions. By referencing the ISAs, it assures users of the financial statements that the audit was conducted with a recognized standard of quality and integrity. For readers of the report, understanding that the audit complied with these international standards is crucial, as it underscores the reliability of the auditor's opinion. It bolsters stakeholders' confidence in the financial statements, knowing that they have been evaluated using consistent and accepted practices. The other options, while related to aspects of the audit and the entity's operations, do not accurately reflect the primary role of the basis of opinion within the auditor's report. Rather, the basis of opinion is focused specifically on the standards followed, reinforcing the overall credibility of the audit process.