Which of the following circumstances would most likely cause an auditor to issue a 'Qualified Opinion'?

Answer options:

The auditor is unable to obtain sufficient appropriate evidence regarding a pervasive uncertainty.

The client has failed to consolidate a material subsidiary, but the effects are not pervasive.

The client has a material departure from GAAP that renders the financial statements as a whole misleading.

There is a substantial doubt about the entity's ability to continue as a going concern, fully disclosed.

How to approach this question

Use the matrix: Nature of Issue (GAAP vs Scope) x Severity (Material vs Pervasive). Qualified = Material but Not Pervasive.

Full Answer

B.The client has failed to consolidate a material subsidiary, but the effects are not pervasive.✓ Correct

The client has failed to consolidate a material subsidiary, but the effects are not pervasive.

A qualified opinion is appropriate when there is a material misstatement (GAAP departure) or scope limitation that is material but NOT pervasive. If it were pervasive, it would be Adverse (for GAAP) or Disclaimer (for Scope).

Common mistakes

Confusing Qualified with Adverse (pervasive) or Disclaimer (scope).

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