Question

A client company refused to disclose important information in its financial statements. Financial statements could be so materially affected. The auditor should issue:

A. Unqualified report with explanatory paragraph.

B. Qualified report.

C. Adverse report

.D. Disclaimer report.

Answer 1

Based on the information available in the question, the correct answer is Option D - Disclaimer Report. In the situation mentioned above, the auditor would find it appropriate to issue a Disclaimer of audit opinion report for the client company. A disclaimer of opinion is generally issued when the auditor is unable to obtain sufficient and appropriate audit evidence, there is a limitation of scope and the information is material and pervasive.

Option A is incorrect. When the financial statements could be materially affected if the client refuses to disclose important information, the auditor cannot issue an Unqualified report. As such this is incorrect.

Option B is incorrect. Qualified report is the type of report that the auditor issues with qualifications pertaining to a specific area within the financial statements. This statements is still accepted by lenders, users of the financial statements etc. However, it is not true in this case because the effect of the financial statements is pervasive.

Option C is incorrect. An adverse opinion is issued when the financial statements are materially misstated. However , in the above scenario, the client refuses to disclose the information inspite of auditor's request which will make the auditor to issue a Disclaimer of opinion because the company has refused to disclose important information.