An update on the trends of modified audit reports in Malta

Abstract

Purpose: The objectives of this dissertation are (i) to identify and analyse the recent trends of Modified Audit Reports in Malta, as well as the underlying reasons for such modifications, during the 2016 - 2021 period, and (ii) to determine the extent of auditors' conformity, as well as to identify any instances of non-conformity, particularly in view of the recently amended auditing standards that are relevant to the Modified Audit Reports. Design: The research objectives for this dissertation were fulfilled through a mixed methodological approach. The initial part of this dissertation involved the content analysis of 768 audit reports, which were obtained from the Malta Business Registry. This was then followed by the qualitative part of this dissertation, which involved the conduct of nine semi-structured interviews with local audit firms, and another semi-structured interview with a representative from the Quality Assurance Unit. Findings: This study found 24.22% Modified Audit Reports, that were mainly modified due to the insertion of an Emphasis of Matter paragraph. The second most common modification was the use of the Other Matter paragraph, followed by the Material Uncertainty Related to Going Concern paragraph and the inclusion of a Modified Audit Opinion, particularly the Qualified Opinion. A significant decreasing trend from prior local studies was observed in the use of Qualified Opinions and, to a certain extent, the Emphasis of Matter paragraphs, whereas a significant increasing trend was recognised with respect to the Other Matter paragraphs. Furthermore, only 16.67% of the Modified Audit Reports were found to be properly in line with the relevant auditing standards, since other reports, especially those issued by Non-Big Four audit firms and Sole Practitioners, had certain non-conformity issues, particularly with respect to ISA 700 (Revised). Conclusions: The main conclusions reached from this dissertation were that there was a decreasing trend in Modified Audit Opinions and that auditors were making more use of other types of modifications in the audit report, especially the Other Matter paragraph. Moreover, it was concluded that there is a need for better Quality Assurance for auditors to achieve a higher extent of conformity with the relevant auditing standards. Value: This dissertation adds value by providing an update on the trends on such research area, particularly following the prior local studies of Farrugia (2003), Grech (2007) and Vassallo (2013). Additionally, this study re-emphasises the need for better action to be taken with respect to adherence to the applicable auditing standards.