Final answer:
If a client refuses to sign the representation letter, this impedes the auditor's ability to fully audit the financial statements, requiring either a qualified opinion or disclaimer of opinion; an adverse opinion or unqualified opinion is not appropriate in this situation.
Step-by-step explanation:
If a client refuses to prepare and sign the representation letter, an auditor is faced with a limitation on the scope of the audit.
This limitation impacts the auditor's ability to obtain sufficient appropriate audit evidence. In such situations, the auditor would typically be required to issue either a qualified opinion or a disclaimer of opinion.
When a representation letter is not signed, issuing an adverse opinion isn't appropriate, as an adverse opinion is given when financial statements are materially misstated.
On the other hand, an unqualified opinion would not be suitable as the lack of a representation letter means the auditor cannot conclude that the financial statements are free from material misstatement.
As per auditing standards, the uncertainty caused by the refusal significantly affects the auditor's ability to form an opinion on the financial statements and thus a disclaimer or a qualification would be necessary.