Discuss the conditions that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit.
What will be an ideal response?
There are three circumstances that may require a departure from an unqualified/unmodified audit report:
1. Scope limitation. A scope limitation results from an inability to collect sufficient appropriate evidence, such as when management prevents the auditor from conducting an audit procedure considered necessary.
2. Departure from GAAP. The financial statements are affected by a departure from GAAP.
3. Lack of auditor independence. The auditor must comply with the second general standard and the Code of Professional Conduct in order to issue an unqualified/unmodified opinion.
The three types of reports other than the standard unqualified/unmodified are:
1. Qualified. The auditor's opinion is qualified because of either a scope limitation or a departure from a GAAP, but overall the financial statements present fairly.
2. Disclaimer. The auditor disclaims an opinion on the financial statements either because there is insufficient appropriate evidence to form an opinion on the overall financial statements or because there is a lack of independence.
3. Adverse. The auditor's opinion states that the financial statements do not present fairly in conformity with GAAP because the departure materially affects the overall financial statements.
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