ExpertMedium1 markMultiple Choice
CPA · Question 14 · Area IV: Forming Conclusions and Reporting
An auditor is reviewing the minutes of the board of directors meetings of a nonissuer. The auditor discovers that the board authorized a significant guarantee of a loan for a related party. This guarantee was not disclosed in the financial statements. The auditor considers this omission to be material. Management refuses to amend the financial statements. What is the appropriate audit opinion?
An auditor is reviewing the minutes of the board of directors meetings of a nonissuer. The auditor discovers that the board authorized a significant guarantee of a loan for a related party. This guarantee was not disclosed in the financial statements. The auditor considers this omission to be material. Management refuses to amend the financial statements. What is the appropriate audit opinion?
Answer options:
A.
Unmodified Opinion with an Emphasis-of-Matter paragraph.
B.
Qualified or Adverse Opinion.
C.
Disclaimer of Opinion.
D.
Unmodified Opinion, but communicate the matter to the Audit Committee.
How to approach this question
Identify the issue: Missing disclosure = GAAP Departure. Determine severity: Material. Result: Qualified or Adverse.
Full Answer
B.Qualified or Adverse Opinion.✓ Correct
Qualified or Adverse Opinion.
The omission of a material disclosure required by the applicable financial reporting framework is a departure from that framework (GAAP violation). Depending on pervasiveness, the auditor must issue a Qualified or Adverse opinion.
Common mistakes
Confusing scope limitations (Disclaimer) with GAAP departures (Qualified/Adverse).
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