A total of 9,000 pupils did not achieve minimum requirements of five A*-C GCSEs in 2010-11, according to the Northern Ireland Audit Office (NIAO).
The NIAO looked at ten primary and post-primary schools to examine literacy and numeracy standards during the school year, and found a decline as students progressed through the education system.
The report found that more than one in six pupils do not reach expected standards in literacy and numeracy by the end of primary school.
More than one in five pupils does not meet the required standards by Key Stage 3.
A gap in educational attainment was found between the most well off and those in social deprivation- 31.7% of pupils entitled receiving free school meals achieved the expected level at GCSE compared to 65.1% not entitled.
Social deprivation was found to have a bigger negative impact on achievement in controlled, (mainly Protestant) schools than in their maintained (mainly Catholic) counterparts.
Boys were found to be performing worse than girls at almost all levels.
Although significant numbers of young people were found not to be meeting required levels, the Auditor General found that achievement has been slowly improving in line with government targets since the last report in 2006.
The auditor said considerable work must be done to improve classroom practice and that teachers must show proficiency in teaching basic literacy and numeracy skills.
He called for effective leadership and involvement of families in helping children.
Regardless of how well the majority of pupils perform, however, it is also clear from our findings that unacceptably large numbers of pupils are failing to achieve even minimal levels in literacy and numeracy.
Comptroller and Auditor General Kieran Donnelly.
"It is vital that our education system does all it can to address underachievement in order to improve the life chances of our young people and to ensure that our economy is well equipped to compete in an increasingly global market place," Kieran Donnelly, Comptroller and Auditor General said.
Education Minister John O'Dowd, welcomed the findings and acknowledged that despite improvements, work is still required to ensure young people meet their full potential.
The Minister also pointed to the excellent practice that the report identified in many local schools that serve disadvantaged communities.
He added: "This report highlights what we already knew from inspection and other evidence: that there is already excellent practice in so many of our schools.
"Through high quality teaching and learning; effective leadership; and good links with parents and communities they are already making a difference to children's lives.
"Our challenge is to become more effective at embedding and sharing this good practice across all schools for the benefit of all our young people."
I am determined to ensure that we continue to take action, from the early years through to school leaving age, to support our children and young people on their learning journeys.
Education Minister John O’Dowd
SDLP East Derry MLA John Dallat called for a campaign to step up children's skills in reading and writing.
"Raising literacy and numeracy levels must be a top priority and with convincing evidence showing that literacy and numeracy difficulties demand early intervention," he said.
"To address these critical gaps successful schools have shown beyond doubt that despite challenging circumstances obstacles to improve pupil and school performances can be overcome very successfully. It is not acceptable that we still have so many schools failing to address these literacy and numeracy problems.
"A number of factors need to be applied to facilitate better pupil learning. These include, consistent quality teaching, excellent leadership, early intervention and help for students who are at risk of not achieving.
He added: "Engagement with parents is of the utmost important as is the effective use of target setting."
SDLP Education spokesperson Sean Rogers has said the Department of Education must "champion the literacy and numeracy skills of young people" in order to raise standards.
"There needs to be a focus at three levels early years, pre and post-primary school on instilling good principles in respect of literacy and numeracy skills," the south Down MLA said.
"Parents play an intrinsic role in their children's development with 80% of their learning taking place outside of the classroom.
"If we build the right educational foundations for our children then we will finally raise standards in literacy and numeracy and this will have knock-on benefits for their lifelong health and wellbeing."
The report will now be considered by the Assembly's Public Accounts Committee.