When there is a material disagreement between the Auditor and management of a client, this could lead to the Auditor expressing a qualified opinion or an adverse opinion.
Required:
Evaluate the circumstances, when due to disagreement between Management and the auditor, an audit firm may express a qualified opinion or an adverse opinion in its report on the financial statements of a company. (5 marks)
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- A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion. A qualified opinion should be expressed as being ‘except for’ the effects of the matter to which the qualification relates.
- An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that an ‘except for’ qualification of the report, is not adequate to disclose the misleading or incomplete nature of the financial statements.