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CFA Level I · CFA Level I Exam · Introduction to Financial Statement Analysis

An analyst reads an unqualified audit opinion on a company's financial statements and concludes that the statements are free of any misstatement and that no further analysis of reporting quality is needed. This conclusion is most likely:

The conclusion is incorrect. An unqualified audit opinion gives reasonable, not absolute, assurance that the statements are free of material misstatement. It does not guarantee accuracy of every amount or confirm earnings sustainability, so the analyst must still evaluate reporting quality and estimates.

  1. Aincorrect, because an unqualified opinion gives reasonable but not absolute assurance that the statements are free of material misstatementCorrect
  2. Bcorrect, because an unqualified opinion guarantees the accuracy of every reported amount
  3. Ccorrect, because auditors also confirm that reported earnings are sustainable and will persist

Explanation

An unqualified opinion provides reasonable assurance, not a guarantee, that the statements are free of material misstatement. It does not assess the sustainability of earnings or remove judgment and estimates, so the analyst still needs to assess reporting quality.

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