Final answer:
An adverse opinion by auditors is issued when the financial statements materially and pervasively misrepresent the company's financial position in violation of GAAP. If an auditor lacks independence, they cannot issue any opinion, so it's not a direct cause for an adverse opinion. Scope limitations and going concern issues usually lead to other types of opinions.
Step-by-step explanation:
Understanding the Issuance of Adverse Opinions by Auditors
Auditors may issue an adverse opinion on a company's financial statements when they conclude that the financial statements do not fairly present the financial position, the results of operations, or cash flows in conformity with generally accepted accounting principles (GAAP). An adverse opinion is the worst type of report an auditor can provide and is only issued when the financial statements contain misstatements that are both material and pervasive.
Violations of GAAP are grounds for an adverse opinion because such violations mean that the financial statements might misleadingly present the company's financial status, which could be significantly harmful to users of the financial statements. In the case of an auditor's lack of independence, an auditor must refuse to issue any opinion on the financial statements, as independence is a cornerstone of the auditing process.
Scope limitations and going concern issues, on the other hand, may lead to qualified opinions or disclaimers of opinion, but not necessarily to an adverse opinion. An adverse opinion specifically addresses the accuracy and presentation of the financial statements in line with GAAP. In the case of scope limitations, auditors might not be able to gather enough evidence to fully assess certain aspects of the financial statements. When a company faces significant doubt about its ability to continue as a going concern, the matter is typically disclosed in the financial statements and auditor's report; if not properly disclosed, it might lead to a qualification or an adverse opinion if pervasive.