Adverse Opinion

Question 1

Adverse Opinion

Answer 1

When a misstatement is material and the effect on the financial statements is pervasive, the auditor should express an adverse opinion indicating that the financial statements are not fairly stated.

lack of adequate disclosures (GAAP departure)

Question 2

What are the effects of an adverse opinion on an audit report?

Answer 2

When an adverse opinion is expressed, the opinion paragraph should include a direct reference to a separate paragraph disclosing the basis for the opinion.

Question 3

Adverse or Qualified Opinion

Answer 3

GAAP departure (when the accounting for a material changes prospectively; cumulative change is required in the current year)
eg. If the financial statements do not conform with FASB requirements for the capitalization of leases, a GAAP departure is present.

unjustified accounting change

Question 4

how does disclaiming affect audit report?

Answer 4

A disclaimer report omits the scope paragraph (the second paragraph in the auditor’s responsibility section that describes an audit) and adds a separate paragraph explaining why the audit did not comply with generally accepted auditing standards (Basis for Disclaimer of Opinion).