Part (di) for 2 marks required Kiwi’s responsibility for reporting going concern to the directors. This question was answered unsatisfactorily.

Many candidates were unable to correctly identify any of the auditors’ responsibilities on reporting going concern to the directors. Where candidates did score a mark it was usually with regards to the requirement to inform the directors if the going concern assumption was appropriate. Many candidates focused instead on the directors’ responsibilities under going concern; this was not what was required.

Part (dii) for 3 marks required the impact on the audit report if the directors refused to amend the financial statements. This was answered unsatisfactorily.

Many candidates were unable to provide the correct audit opinion and so adopted a scatter gun approach of listing every audit report modification available.

Also many candidates correctly identified that the opinion needed to be modified; however they then suggested an emphasis of matter paragraph. This demonstrates that candidates do not understand when an “emphasis of matter” paragraph is relevant, and seem to think that it is an acceptable alternative to modifying the opinion.

This demonstrates candidates’ fundamental lack of understanding of audit reports. 
Where candidates were able to correctly identify that an adverse opinion was required they failed to describe the impact on the audit report, many were unable to describe how the opinion paragraph would change and that a basis for adverse opinion paragraph was necessary.

Future candidates are once again reminded that audit reports are the only output of an external audit and hence an understanding of how an audit report can be modified and in which circumstances, is considered very important for this exam.