CPA Exam — AUDForming Conclusions and ReportingHard
An auditor is unable to obtain sufficient appropriate audit evidence due to a significant scope limitation imposed by management. The potential effects of this limitation on the financial statements are material and pervasive. In this situation, the auditor should issue a(n):
- AUnmodified opinion.
- BQualified opinion.
- CAdverse opinion.
- DDisclaimer of opinion.
Show answer & explanationAnswer & explanation
Correct answer: D. Disclaimer of opinion.
When an auditor is unable to obtain sufficient appropriate audit evidence due to a scope limitation, and the potential effects on the financial statements are both material and pervasive, a disclaimer of opinion is appropriate. This indicates that the auditor does not express an opinion on the financial statements.
Why the other options are wrong
- A. An unmodified opinion is issued when there are no material misstatements or scope limitations.
- B. A qualified opinion is issued when there is a material misstatement or a material scope limitation that is *not* pervasive.
- C. An adverse opinion is issued when financial statements are materially and pervasively misstated, not due to a scope limitation.
Disclaimer of Opinion (Scope Limitation)
A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence, and the potential effects of this scope limitation on the financial statements are both material and pervasive, meaning no opinion can be expressed.
- Issued due to pervasive scope limitation.
- Auditor expresses no opinion.
- Highest level of modification for scope limitations.
Memory trick: Scope issues lead to Qualified or Disclaimed reports.