For your activity today, describe the situation and the circumstances that leads the auditor to give these types of opinion: a. unqualified opinion An auditor will issue an unqualified opinion if after it has performed the audit, the financial statements presented conform to the Generally Accepted Accounting Principles (GAAP). This means that reports are fair and free from material misstatements. b. qualified opinion An auditor would give a qualified opinion if both circumstances arise - materially misstated financial statements and an inability to obtain sufficient appropriate audit evidence. This situation simply means that a portion or an item in financial statement reports does not conform to the Generally Accepted Accounting Principles (GAAP). The effects of this situation may be material but not pervasive. c. modified opinion A modified opinion is a type of audit opinion where in two circumstances are present: one, materially misstated financial statements; and two, inability to obtain sufficient appropriate audit evidence. In the first circumstance, the auditor settles that the financial statements are materially misstated. For the second circumstance, the auditor is unable to obtain sufficient audit evidence that the financial statement is free from material misstatements as a whole. An audit report that has modified opinion has a modification paragraph that identifies whether that type of audit opinion is a qualified, adverse, or disclaimer of opinion. e. adverse opinion The auditor must issue an adverse opinion if the material misstatement is pervasive which affects numerous accounts, financial statement relationship and or it is material to the point that the financial statements as a whole is misleading. Circumstances that give rise to adverse opinion is when the reports do not conform to the Generally Accepted Accounting Principles (GAAP). This type of opinion gives an interpretation that the financial statements does not accurately present the entity’s condition. f. disclaimer opinion The auditor must issue a disclaimer of opinion when the circumstance – an ability to obtain sufficient appropriate audit evidence – has occurred and the possible effects of this are both material and pervasive. This scope limitation may arise in the following situations – one, circumstances beyond the control of the client; two, circumstances relating to the nature and timing of the auditor’s work; and three, the client itself refuses to cooperate. Also, other circumstances such as substantial doubt about ability to remain as a going concern and multiple uncertainties will result to disclaimers of opinion. In the audit report, the disclaimer states that the auditor does not express an opinion in the financial statements.
