Question

When an adverse opinion is issued regarding internal control over financial reporting (ICFR), the auditor _______.

A. Maintains that the company has fairly reported its financial statements in accordance with Generally Accepted Accounting Principles (GAAP).
B. Makes a clear statement that the company has not maintained effective internal control for the period under audit.
C. Makes a clear statement that the company has maintained effective internal control for the period under audit.
D. Is not entitled to receive full compensation for services rendered during the audit.

Answer 1

An adverse opinion regarding ICFR indicates the auditor has determined that the company has not maintained effective internal control over financial reporting for the period audited. The correct option is (B).

Step-by-step explanation:

When an adverse opinion is issued regarding internal control over financial reporting (ICFR), the auditor makes a clear statement that the company has not maintained effective internal control for the period under audit.

Therefore, the correct answer to this question is B.

An adverse opinion on ICFR indicates significant deficiencies or material weaknesses, suggesting that there is a reasonable possibility that a material misstatement of the company's financial statements will not be prevented or detected on a timely basis.

It is essential to note that such an opinion does not necessarily relate to the accuracy of the financial statements themselves, which may or may not receive an unqualified (clean) opinion.