Final answer:
When an auditor expresses an adverse opinion, the opinion paragraph should include the substantive reasons for the financial statements being misleading and a direct reference to a separate paragraph disclosing the basis for the opinion. Option C is correct.
Step-by-step explanation:
When an auditor expresses an adverse opinion, the opinion paragraph should include the substantive reasons for the financial statements being misleading. This means that the auditor should provide specific details about why they believe the financial statements are inaccurate or misleading. It is important for the auditor to support their adverse opinion with evidence and examples from their audit process.
In addition to stating the substantive reasons, the opinion paragraph should also include a direct reference to a separate paragraph disclosing the basis for the opinion. This separate paragraph is where the auditor explains in more detail the specific issues or departures from generally accepted accounting principles that led to the adverse opinion. By providing this reference, the auditor helps the reader of the financial statements understand the basis for their adverse opinion.
Therefore, the correct answer is option C: The substantive reasons for the financial statements being misleading and option B: A direct reference to a separate paragraph disclosing the basis for the opinion should both be included in the opinion paragraph when an auditor expresses an adverse opinion.