When an auditor finds that the audit is insufficient in scope to render an opinion, he will issue ________.
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A disclaimer of opinion is a statement of inability to express an opinion.
When an auditor finds that the audit is insufficient in scope to render an opinion, he will issue a disclaimer of opinion.
A disclaimer of opinion is an opinion issued by an auditor when they are unable to express an opinion on the financial statements of an entity. It indicates that the auditor could not gather enough evidence or perform the necessary procedures to form an opinion on the financial statements as a whole.
The reasons for issuing a disclaimer of opinion can vary. Some common reasons include:
Scope Limitation: The auditor may encounter situations where they are unable to obtain sufficient appropriate audit evidence due to limitations imposed by the entity or circumstances beyond their control. For example, if the auditor is denied access to certain records or documents necessary to conduct a thorough examination, it may result in a scope limitation.
Material Misstatements: If the auditor identifies pervasive and significant uncertainties or limitations in the accounting records or financial statements, they may be unable to determine the extent of the potential misstatements. In such cases, the auditor may conclude that they cannot express an opinion on the financial statements.
Going Concern Issues: If there are substantial doubts about the entity's ability to continue its operations, and the auditor cannot obtain sufficient information or evidence to evaluate management's plans or assess the entity's ability to continue as a going concern, a disclaimer of opinion may be issued.
It's important to note that a disclaimer of opinion is considered the most negative type of audit opinion. It implies that the auditor cannot provide any assurance regarding the accuracy, completeness, or fairness of the financial statements. Users of the financial statements should be aware that the auditor was unable to form an opinion and should exercise caution when relying on the information presented.
To summarize, when an auditor finds that the audit is insufficient in scope to render an opinion, they will issue a disclaimer of opinion. This indicates the inability of the auditor to express an opinion on the financial statements due to limitations, uncertainties, or the lack of evidence.