CPA Exam — AUDForming Conclusions and ReportingEasy
An auditor concludes that a client's financial statements are presented fairly in all material respects, except for a material misstatement related to inventory valuation, which is not pervasive. Which type of audit opinion should the auditor issue?
- ADisclaimer of opinion
- BAdverse opinion
- CQualified opinion
- DUnmodified opinion with an emphasis-of-matter paragraph
Show answer & explanationAnswer & explanation
Correct answer: C. Qualified opinion
A qualified opinion is issued when the financial statements are presented fairly in all material respects, except for a specific material misstatement that is not pervasive. This scenario perfectly fits that criterion.
Why the other options are wrong
- A. A disclaimer of opinion is issued when the auditor cannot obtain sufficient appropriate audit evidence and cannot form an opinion.
- B. An adverse opinion is issued when misstatements are both material and pervasive.
- D. An unmodified opinion with an emphasis-of-matter paragraph is used for matters appropriately presented or disclosed, but which are fundamental to users' understanding, not for uncorrected material misstatements.
Qualified Opinion
An audit opinion issued when financial statements are materially misstated or there's a scope limitation, but the effects are not pervasive to the financial statements as a whole.
- Used for material but not pervasive misstatements.
- Also used for material but not pervasive scope limitations.
- Indicates 'except for' the matter, the statements are fairly presented.
Memory trick: O-QAD: Opinions Qualify All Disclosures