ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is the purpose of narrative notes in the auditor's report?

1. To summarize the audit findings

2. To describe and explain the system

3. To offer recommendations for future audits

4. To present financial data

The correct answer is: To describe and explain the system

The purpose of narrative notes in the auditor's report is primarily to describe and explain the system. These notes provide detailed context about the subject of the audit, including the processes, controls, and framework within which the entity operates. By elaborating on the system, narrative notes help stakeholders understand how the auditor arrived at their conclusions and what areas were examined during the audit. This adds transparency and allows for a clearer comprehension of the audit’s findings, the internal controls in place, and any limitations observed. While summarizing the audit findings is a relevant activity, that would typically be communicated through the main audit opinion rather than through narrative notes. Recommendations for future audits may be discussed in a management letter or in separate communications to management rather than in the main auditor's report. Presenting financial data is typically reserved for the financial statements themselves, not for the auditor's report, which focuses instead on the quality and appropriateness of the audit procedures undertaken and the resulting implications for the financial statements.