Final answer:
A disclaimer of opinion is issued when an auditor encounters a scope limitation that is both material and pervasive, making it impossible to express an opinion on the financial statements.
Step-by-step explanation:
A disclaimer of opinion is issued by an auditor when there is a limitation on the scope of the audit that is both material and pervasive. This means that the auditor could not obtain sufficient appropriate audit evidence and concludes that the possible effects on the financial statements could be both material and widespread. Consequently, the auditor is not able to and does not express an opinion on the financial statements.
This situation typically occurs when the auditor encounters significant limitations imposed by the client or other circumstances, such as restrictions on the auditor's work or an inability to obtain necessary information. If the scope limitation is only material but not pervasive, or if alternative procedures can eliminate the effects of a scope limitation, the auditor may choose to issue a qualified opinion or modify the audit report accordingly rather than a disclaimer of opinion.