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IAI Actuarial Core Principles · Business Finance · Regulation of financial reporting of incorporated entities

During an audit of an Indian manufacturer, the auditor cannot obtain sufficient appropriate evidence on inventory, which is material and pervasive to the financial statements as a whole because many balances depend on it. What opinion should the auditor express?

The auditor should issue a disclaimer of opinion. The problem is a scope limitation, not a known misstatement, and its effect is material and pervasive. Adverse opinions address pervasive misstatements, qualified opinions address non-pervasive issues, and emphasis or key audit matter paragraphs do not modify the opinion.

  1. AUnmodified opinion with an emphasis of matter paragraph
  2. BQualified opinion because of a disagreement
  3. CAdverse opinion because the accounts are misstated
  4. DDisclaimer of opinionCorrect
  5. Unmodified opinion with a key audit matter

Explanation

Inability to obtain sufficient evidence that is both material and pervasive requires a disclaimer. An adverse opinion applies to known pervasive misstatement, not a scope limitation. A qualified opinion fits only non-pervasive effects; emphasis or key audit matters do not modify the opinion.

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