Question

An adverse opinion is issued when the auditor believes?

1) some parts of the financial statements are materially misstated or misleading.
2) the financial statements would be found to be materially misstated if an investigation were performed.
3) the auditor is not independent.
4) the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

Answer 1

An adverse opinion is given when an auditor finds the financial statements to be so materially misstated that they do not accurately represent the company's financial status according to GAAP.

Step-by-step explanation:

An adverse opinion is issued by an auditor when they believe that the overall financial statements are so materially misstated that they do not present fairly the financial position, results of operations, or cash flows in conformity with generally accepted accounting principles (GAAP). It is the most serious type of report that an auditor can render and indicates that the financial statements might be misleading to the users of the statements. This situation occurs when there are discrepancies that are not only material but also pervasive to the financial statements.