ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is the primary purpose of ISA 700?

1. To formulate forecasts for future financial performance

2. To establish guidelines for the auditor's report format and content

3. To outline the responsibilities of management during an audit

4. To provide templates for audit planning documentation

The correct answer is: To establish guidelines for the auditor's report format and content

The primary purpose of ISA 700 is to establish guidelines for the auditor's report format and content. This standard aims to enhance the readability and understanding of the auditor's report to the users of the financial statements. By providing a clear structure and specific requirements regarding what must be included in the report, ISA 700 ensures that auditors communicate their findings effectively, which is essential for stakeholders relying on the auditor's opinion to make informed decisions. In particular, ISA 700 outlines the components of the auditor's report, such as the title, addressee, scope, and the opinion section, among others. This consistency helps users, whether they are investors, creditors, or regulators, to interpret audit reports uniformly, contributing to the overall transparency and reliability of financial reporting. Options discussing formulating forecasts for future financial performance, outlining management's responsibilities during an audit, or providing templates for audit planning documentation do not pertain to ISA 700's focus on the auditor's reporting standards. Instead, these aspects are covered by other standards or guidelines that address different dimensions of the audit process, distinguishing ISA 700's specific relevance in the context of report formulation.