In an integrated audit of an issuer, the auditor identifies a material weakness in internal control over financial reporting. The auditor determines that the financial statements are NOT materially misstated. Which of the following reports should the auditor issue?

Answer options:

A qualified opinion on internal control and an unqualified opinion on the financial statements.

An adverse opinion on internal control and an adverse opinion on the financial statements.

An adverse opinion on internal control and an unqualified opinion on the financial statements.

A disclaimer of opinion on internal control.

How to approach this question

Treat the two opinions (IC and FS) separately. Material Weakness = Adverse IC opinion. No FS errors = Unqualified FS opinion.

Full Answer

C.An adverse opinion on internal control and an unqualified opinion on the financial statements.✓ Correct

Under PCAOB AS 2201, the existence of a material weakness requires an Adverse opinion on internal control. However, the financial statement audit is based on the numbers presented. If the financial statements are fairly stated (perhaps due to substantive corrections or luck), the FS opinion remains Unqualified (Unmodified).

Common mistakes

Assuming an adverse IC opinion automatically contaminates the FS opinion.

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