Question

AnnaLisa, an auditor for N.M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the company hired as a consultant and insists that it is a waste of time for AnnaLisa to evaluate these controls. Inventory is a material account, but procedures performed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weakness in any other area of the client's internal control relating to financial reporting. What kind or report should AnnaLisa issue on the effectiveness of Lileah's internal controls?

Answer 1

The options are given below:

A. An unqualified report.

B. An adverse report.

C. A disclaimer of opinion.

D. An exculpatory opinion.

The correct option is C.

Step-by-step explanation:

A disclaimer of opinion is issued by an auditor in the event that the he/she is unable to complete the audit report due to an absence of financial records or when there is a lack of cooperation from management. What this signifies is that no opinion over the financial statements was able to be determined. A disclaimer of opinion is not an opinion itself.

Also, a disclaimer of opinion can be due to the fact that the client placed a restriction on the scope of the examination to such an extent that the auditor was not able to form an opinion.