Which of the following is/are true about an auditor's opinion?
I. If an auditor finds that the firm's financial statements fairly represent the company's financial performance and position, he will issue an unqualified opinion.
II. If an auditor finds that some parts of the firm's financial statements are questionable or do not have sufficient verifiable corroboration, he will issue a qualified opinion.
III. If an auditor finds that the audit is insufficient in scope to render an opinion, he will not issue an opinion.
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A. B. C. D.Explanation
If an auditor finds that the audit is insufficient in scope to render an opinion, he will issue a Disclaimer of opinion.
The correct answer is option C: I & II.
Let's break down each statement and understand what it means:
I. If an auditor finds that the firm's financial statements fairly represent the company's financial performance and position, he will issue an unqualified opinion. An unqualified opinion, also known as a clean opinion, is issued when the auditor concludes that the financial statements are presented fairly and in accordance with the applicable financial reporting framework. This means that the auditor believes the financial statements provide a true and accurate representation of the company's financial performance and position. Therefore, statement I is true.
II. If an auditor finds that some parts of the firm's financial statements are questionable or do not have sufficient verifiable corroboration, he will issue a qualified opinion. A qualified opinion is issued when the auditor concludes that, except for certain identified issues, the financial statements are presented fairly and in accordance with the applicable financial reporting framework. The identified issues could relate to a specific area or items within the financial statements that the auditor believes are questionable or lack sufficient supporting evidence. By issuing a qualified opinion, the auditor is expressing a reservation about the accuracy or completeness of the financial statements. Therefore, statement II is also true.
III. If an auditor finds that the audit is insufficient in scope to render an opinion, he will not issue an opinion. Sometimes, the auditor may encounter limitations or restrictions that prevent them from obtaining sufficient appropriate audit evidence to form an opinion on the financial statements. This could occur due to factors such as significant scope limitations, inadequate records, or significant uncertainties. In such cases, the auditor cannot express an opinion on the financial statements and would instead issue a disclaimer of opinion or withdraw from the engagement. Therefore, statement III is false.
To summarize, statement I is true because an unqualified opinion is issued when the financial statements fairly represent the company's financial performance and position. Statement II is true because a qualified opinion is issued when certain parts of the financial statements are questionable or lack sufficient corroboration. Statement III is false because if the audit is insufficient in scope to render an opinion, the auditor will not issue an opinion (such as a disclaimer of opinion) rather than issuing a qualified opinion. Therefore, the correct answer is option C: I & II.