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The auditor should state the reasons for his reservations in audit report and should try to quantify the effect on them. This should be done in case he has expressed-
(i) A qualified opinion
(ii) An unqualified opinion with emphasis of matter paragraph
(iii) An adverse opinion
(iv) A disclaimer of opinion
(i) A qualified opinion
(ii) An unqualified opinion with emphasis of matter paragraph
(iii) An adverse opinion
(iv) A disclaimer of opinion
Answer & Solution
Answer: Option
C
Solution:
When an auditor issues an audit report, the type of opinion expressed depends on the nature and extent of the issues found during the audit.
(i) Qualified opinion: This is given when the auditor finds certain issues or limitations that are material but not pervasive. In such cases, the auditor must state the reasons for qualification and, wherever possible, quantify their effect on the financial statements.
(iii) Adverse opinion: This is issued when the auditor believes that the financial statements are materially misstated and misleading. The auditor must clearly explain the reasons for this opinion and, if feasible, quantify the impact of the misstatements.
(iv) Disclaimer of opinion: This is issued when the auditor is unable to obtain sufficient appropriate audit evidence and therefore cannot form an opinion. In this case too, the auditor must state the reasons for the disclaimer and, if possible, quantify the effects of the uncertainty or limitation.
(ii) Unqualified opinion with emphasis of matter paragraph does not require quantification of effects because the opinion remains unqualified; the paragraph is merely to draw attention to certain matters without affecting the overall opinion.
Therefore, the auditor is required to state reasons and quantify the effect only in cases of qualified opinion, adverse opinion, and disclaimer of opinion.
Hence, the correct answer is Option C: (i), (iii) and (iv) only.
(i) Qualified opinion: This is given when the auditor finds certain issues or limitations that are material but not pervasive. In such cases, the auditor must state the reasons for qualification and, wherever possible, quantify their effect on the financial statements.
(iii) Adverse opinion: This is issued when the auditor believes that the financial statements are materially misstated and misleading. The auditor must clearly explain the reasons for this opinion and, if feasible, quantify the impact of the misstatements.
(iv) Disclaimer of opinion: This is issued when the auditor is unable to obtain sufficient appropriate audit evidence and therefore cannot form an opinion. In this case too, the auditor must state the reasons for the disclaimer and, if possible, quantify the effects of the uncertainty or limitation.
(ii) Unqualified opinion with emphasis of matter paragraph does not require quantification of effects because the opinion remains unqualified; the paragraph is merely to draw attention to certain matters without affecting the overall opinion.
Therefore, the auditor is required to state reasons and quantify the effect only in cases of qualified opinion, adverse opinion, and disclaimer of opinion.
Hence, the correct answer is Option C: (i), (iii) and (iv) only.