In case the auditor gives a disclaimer of opinion in the audit report which of the following paragraph(s) of a standard unqualified audit report are modified?
Options:
| a) Scope paragraph b) Opinion paragraph c) Scope and opinion paragraphs d) Introductory, scope and opinion paragraph |
The Correct Answer Is:
c) Scope and opinion paragraphs
Explanation of the Correct Answer
When an auditor issues a disclaimer of opinion in the audit report, it means that they cannot express an opinion on the financial statements due to significant limitations or uncertainties encountered during the audit. In such a scenario, the standard unqualified audit report is modified in the following ways:
c) Scope and opinion paragraphs are modified.
Let’s go into detail to explain why this answer is correct and why the other options are not:
- Scope Paragraph Modification: The scope paragraph of a standard unqualified audit report typically describes the responsibilities of the auditor, including their examination of the financial statements and their opinion on those statements.
- Opinion Paragraph Modification: In an unqualified audit report, the opinion paragraph contains the auditor’s opinion on the financial statements. This opinion is either unqualified (a clean opinion) or qualified with specific explanations.
These modifications are necessary to provide transparency and communicate to the users of the financial statements that the auditor was unable to form an opinion due to certain limitations or uncertainties.
Now, let’s explain why the other options are not correct:
a) Scope Paragraph:
The scope paragraph of an audit report outlines the responsibilities of the auditor and provides information on the nature and extent of the audit procedures performed. It describes what the auditor has done to form an opinion on the financial statements.
In a disclaimer of opinion, the scope paragraph is modified to explain the limitations encountered during the audit that prevented the auditor from obtaining sufficient appropriate audit evidence to form an opinion.
This may include situations where the auditor was unable to perform necessary audit procedures, such as due to restrictions imposed by the client, lack of access to critical information, or significant uncertainties surrounding the financial statements.
However, option “a” is not the correct answer because although the scope paragraph is indeed modified in a disclaimer of opinion, it is not the only paragraph that undergoes modification. The opinion paragraph is also altered to explicitly state that the auditor disclaims an opinion.
b) Opinion Paragraph:
The opinion paragraph of an audit report is where the auditor expresses their conclusion on the fairness of the financial statements. In an unqualified audit report, this paragraph contains either a clean opinion (unqualified) or a qualified opinion with specific explanations.
In the case of a disclaimer of opinion, the auditor cannot express an opinion on the financial statements due to significant limitations or uncertainties encountered during the audit. Therefore, the opinion paragraph is modified to explicitly state that the auditor disclaims an opinion.
This is the correct answer because, in a disclaimer of opinion, both the scope and opinion paragraphs are modified to reflect the auditor’s inability to form an opinion on the financial statements.
d) Introductory, Scope, and Opinion Paragraphs:
The introductory paragraph of an audit report provides general information about the financial statements and outlines the responsibilities of both the management and the auditor. It sets the context for the audit report.
In the case of a disclaimer of opinion, the introductory paragraph is typically not modified. It serves its usual function of providing introductory information and does not directly address the reasons for the disclaimer.
Option “d” is not the correct answer because while the scope and opinion paragraphs are modified in a disclaimer of opinion, the introductory paragraph remains largely unchanged.
In summary, in a disclaimer of opinion, the modifications are primarily focused on the scope and opinion paragraphs to communicate the auditor’s inability to form an opinion on the financial statements due to limitations or uncertainties encountered during the audit. The other paragraphs, including the introductory paragraph, remain largely unaffected.
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