In: Accounting
State the audit opinion that is required in each of the following circumstances and levels of materiality:
(i) Circumstance: The auditor is unable to obtain sufficient appropriate evidence concerning sales and inventory levels.
Level of materiality: Material and pervasive.
(ii) Circumstance: The auditor and management disagree about the application of accounting policies.
Level of materiality: Material and pervasive.
(iii) Circumstance: The auditor and management disagree about a disclosure.
Level of materiality: Material but not pervasive
(iv) Circumstance: The auditor is unable to obtain sufficient appropriate evidence concerning the client’s depreciation expense.
Level of materiality: Material but not pervasive.
Answer is as follows:
(i) Disclaimer of Opinion. It is given when auditor is unable to
obtain sufficient and appropriate audit evidence and concludes that
possible effects of undetected misstatements would be both material
pervasive. Here auditor has no sufficient and appropriate evidence
about sales and inventory level and given that it is material and
pervasive.
(ii) Adverse opinion . It is given when auditor having sufficient and appropriate audit evidence concludes that misstatements are both material and pervasive. Here auditor has sufficient and appropriate evidence about wrong application of accounting policies and given that it is material and pervasive.
(iii) Qualified Opinion. It is given when auditor having sufficient and appropriate audit evidence concludes that misstatements are material but not pervasive. Here auditor has sufficient and appropriate evidence about inadequate or misleading disclosures and given that it is material but not pervasive.
(iv) Qualified Opinion. It is given when auditor is unable to obtain sufficient and appropriate audit evidence but concludes that possible effects of undetected misstatements are material but not pervasive. Here auditor is unable to obtain sufficient and appropriate evidence about depreciation expense and given that it is material but not pervasive.