Question

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a?

1) disclaimer of opinion in all cases.
2) qualification of both scope and opinion in all cases.
3) disclaimer of opinion whenever materiality is in question.
4) qualification of both scope and opinion whenever materiality is in question.

Answer 1

An auditor may issue a disclaimer of opinion or a qualification of both scope and opinion when a client restricts the audit’s scope, depending on materiality and pervasiveness of the potential impact on the financial statements. So the correct answer is option 2.

Step-by-step explanation:

When a client imposes restrictions on the scope of an audit, it raises concerns about the possibility of management attempting to prevent discovery of misstatements. In such situations, if materiality is indeed in question, the auditor will typically issue a disclaimer of opinion or a qualification of both scope and opinion.

However, it is not accurate to say that one action will be taken in all cases as the auditor’s response will depend on the specific circumstances of the restriction and the potential impact on the financial statements. A disclaimer of opinion may be issued when the limitation on scope is so material and pervasive that the auditor is unable to obtain sufficient appropriate audit evidence and thus is unable to form an opinion on the financial statements.

Conversely, a qualification of both scope and opinion may be appropriate when the possible effects of undetected misstatements, due to the limitation, are material but not pervasive to the financial statements.