ExpertHard1 markMultiple Choice
CPA · Question 65 · Area 4: Reporting
An auditor is unable to observe the counting of physical inventory at the beginning of the year. The auditor was able to observe the year-end count and is satisfied with the ending balance. However, the auditor cannot verify the opening inventory balance by alternative procedures. Which opinion is most appropriate for the Statement of Income?
An auditor is unable to observe the counting of physical inventory at the beginning of the year. The auditor was able to observe the year-end count and is satisfied with the ending balance. However, the auditor cannot verify the opening inventory balance by alternative procedures. Which opinion is most appropriate for the Statement of Income?
Answer options:
A.
Unmodified Opinion
B.
Qualified Opinion
C.
Adverse Opinion
D.
Disclaimer of Opinion
How to approach this question
Scope Limitation (Can't verify Opening Inv). Affects Income Statement (COGS). Pervasive? Yes. Result = Disclaimer.
Full Answer
D.Disclaimer of Opinion✓ Correct
Disclaimer of Opinion
The inability to verify opening inventory prevents the auditor from determining Cost of Goods Sold. Since COGS is a major component of Net Income, the auditor generally disclaims an opinion on the results of operations (Income Statement) and cash flows.
Common mistakes
Giving a Qualified opinion (often considered pervasive) or Unmodified.
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