Question

Management has recorded prepaid insurance as an asset in the previous year. This year, to reduce record-keeping costs, it expenses insurance. If the amount is immaterial to the financial statements, what type of audit report is issued?

1) a disclaimer opinion is issued.
2) a qualified opinion is issued.
3) a standard unmodified opinion audit report is issued.
4) no audit report can be issued.

Answer 1

If management expenses prepaid insurance that was previously recorded as an asset and the amount is immaterial, a standard unmodified opinion audit report is issued.

Step-by-step explanation:

If management expenses insurance that was previously recorded as an asset, and the amount is immaterial to the financial statements, a standard unmodified opinion audit report is likely to be issued. This is because the immateriality of the amount does not have a significant impact on the overall fairness of the financial statements. The audit report is not expected to be modified or disclaimed.