Final answer:
An unmodified (or unqualified) opinion means financial statements are presented fairly without material misstatements in accordance with accounting standards, while a modified opinion indicates issues with the statements, ranging from minor (qualified) to severe (adverse opinion or disclaimer).
Step-by-step explanation:
The correct answer to the question is: 3) An unmodified opinion states that the financial statements are presented fairly in accordance with the applicable financial reporting framework, and a modified opinion finds they are not. An unmodified opinion, often referred to as an unqualified opinion, is the assurance that the financial statements of an entity are free from material misstatement and are in accordance with the relevant accounting principles. It is the best type of audit report one can receive. On the other hand, a modified opinion suggests that, due to certain conditions, the auditor could not express an unmodified opinion. A modified opinion can be further categorized into qualified opinion, adverse opinion, or disclaimer of opinion, depending on the severity and nature of the issues found in the financial statements.
A qualified opinion signifies that except for certain areas, the financial statements are presented fairly. An adverse opinion is issued when the misstatements are both material and pervasive, indicating that the financial statements do not present a fair view of the entity's financial condition. Lastly, a disclaimer of opinion is given when the auditor lacks sufficient appropriate audit evidence to form an opinion.