CPA Exam — AUDForming Conclusions and ReportingMedium
An auditor has completed an audit of a non-public entity's financial statements. The auditor found a material misstatement that is isolated to a specific account balance and does not affect the overall financial statements. The auditor concludes that the misstatement is material but not pervasive. Which of the following audit opinions should the auditor express?
- AQualified opinion
- BAdverse opinion
- CUnmodified opinion
- DDisclaimer of opinion
Show answer & explanationAnswer & explanation
Correct answer: A. Qualified opinion
When an auditor identifies a material misstatement that is not pervasive to the financial statements, a qualified opinion is appropriate. This indicates that except for the effects of the matter to which the qualification relates, the financial statements are presented fairly.
Why the other options are wrong
- B. An adverse opinion is issued when material misstatements are both material and pervasive.
- C. An unmodified opinion is issued when financial statements are presented fairly in all material respects, with no material misstatements.
- D. A disclaimer of opinion is issued when the auditor cannot obtain sufficient appropriate audit evidence, not for a known misstatement that is not pervasive.
Qualified Opinion Condition
A qualified opinion is issued when financial statements contain a material misstatement that is not pervasive, or when there is a material scope limitation that is not pervasive.
- Misstatement is material
- Misstatement is NOT pervasive
- F/S are fair 'except for' the issue
Memory trick: Material but not Pervasive gets 'Qualified', Pervasive gets 'Adverse'.