Final answer:
The qualifying paragraph in an audit report, issued in cases of a qualified or adverse opinion, is placed between the scope and opinion paragraphs. This allows users of the financial statements to understand the auditor's concerns before the final opinion is presented.
Step-by-step explanation:
When dealing with the auditing of financial statements, auditors must express their opinion on the fairness and accuracy of the financial statements presented. In scenarios where an auditor cannot provide an unqualified opinion, they may issue a qualified or an adverse opinion. Whenever these types of opinions are necessary, due to a disagreement or limitation in scope, a qualifying paragraph is added to the audit report to explain the reasons for not providing an unqualified opinion.
The correct placement for the qualifying paragraph, according to standard auditing reporting formats, is between the scope and opinion paragraphs. Therefore, the answer to the question is (2) between the scope and opinion paragraphs. By inserting the qualifying paragraph in this position, it ensures that readers of the financial statements are duly informed about the nature of the auditor's concerns before the auditor's final opinion is presented.
This information is essential to users of financial statements, such as investors, creditors, and other stakeholders, as it helps to assess the reliability of the financial information provided. An understanding of the audit report structure aids not only in comprehension but also in the ability to scrutinize financial records more effectively.