CFA Level I · CFA Level I Exam · Financial Reporting Quality
Which of the following is the most likely role of an external auditor's unqualified (unmodified) opinion in supporting financial reporting quality?
An unmodified audit opinion gives reasonable assurance that the financial statements are free of material misstatement and present fairly under the framework. It is not a guarantee against fraud and says nothing about the sustainability or quality of earnings, so the second option is correct.
- AIt guarantees that no fraud exists in the statements.
- BIt gives reasonable assurance that the statements are free of material misstatement.Correct
- CIt certifies that the company's reported earnings are of high sustainable quality.
Explanation
An audit provides reasonable, not absolute, assurance that the financial statements are free of material misstatement and fairly presented under the applicable framework. It does not guarantee the absence of fraud, and it does not evaluate whether earnings are sustainable or of high quality.
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