Question

When an adverse opinion is issued regarding internal control over financial reporting (ICFR), the audito-

A. Opines 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

B. Makes a clear statement that the company has not maintained effective internal control for the period under audit.

An adverse opinion on internal control over financial reporting indicates the auditor's clear statement that the company's internal controls are not effective for the audit period.

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 the student's question is B.

The audit report will state that there is a material weakness in the internal controls, which means that there is a reasonable possibility that a material misstatement in the company's financial statements will not be prevented or detected on a timely basis.