The CPA Exam community & online study group to help you pass!
Under which of the following circumstances would an auditor's expression of an unqualified opinion be inappropriate?
a. The auditor is unable to obtain the audited financial statements of a significant subsidiary.
b. The financial statements are prepared on the entity's income tax basis.
c. There are significant deficiencies in the design and operation of the entity's internal control.
d. Analytical procedures indicate that many year-end account balances are not comparable with the prior year's
Multiple choice questions and detailed explanations provided by Yaeger CPA Review. Yaeger CPA provides great, exclusive discounts for CPA Exam Club members - save up to $950 on a full section ($300 off + 2 free CRAMS of choice) and up to $425 off a single section purchase ($100 off + 1 free CRAM). Go here for details.
Answer is A
A qualified opinion is given when an auditor has taken exception to accounting applications or is not able to establish the outcome potential of a material uncertainty. This includes:
1. Audit was restricted in scope where otherwise the financial statements present fairly the company's financial
2. Audit results may include:
a. Records do not completely reflect conditions that conform to GAAP which includes material departure
from GAAP, lack of sufficient evidence, a scope limitation or a required financial statement is missing.
b. Material change between accounting periods in accounting policies and/or how they are applied.
c. Significant uncertainties regarding assumptions underlying the financial statements.
d. Inability to conduct complete verification of the accuracy of the accounting records due to certain
e. Auditor and management were unable to reach a compromise regarding method of treatment or
valuation of certain assets, and/or management was unwilling or unable to correct certain
unacceptable accounting practices.
The inability to obtain financial statements from a significant subsidiary would result in a qualified opinion.
When financial statements are prepared under the income tax basis (as in Other Comprehensive Basis of Accounting, OCBOA), an unqualified opinion is possible if the auditor changes some of the standard report language.
Significant deficiencies in internal control examined during an audit and analytical procedures used in planning of an audit that highlight audit concerns will affect the auditor’s overall risk assessment and resulting audit procedures. They would not result in a qualified opinion. Although the auditor would report any internal control deficiencies to the appropriate governance body of the company.