Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

If a publicly held company omits the statement of cash flows from its financial statements, what type of opinion does the auditor usually express?

1. Unmodified opinion with an emphasis-of-matter paragraph

2. Review report

3. Disclaimer of opinion

4. Qualified opinion

The correct answer is: Qualified opinion

In cases where a publicly held company omits the statement of cash flows from its financial statements, the auditor typically expresses a qualified opinion. This type of opinion indicates that while the financial statements as a whole are presented fairly, the omission of a significant component—in this case, the statement of cash flows—prevents the financial statements from being in compliance with generally accepted accounting principles (GAAP). The statement of cash flows is critical as it provides essential information about the company’s liquidity, financial flexibility, and cash management. Without this statement, users of the financial statements lack vital insight into the company’s cash inflows and outflows during a reporting period. The qualified opinion highlights this significant omission, indicating that while the other financial statements may accurately reflect the company's financial position, the absence of the cash flow statement renders the overall financial presentation misleading. The other responses are not appropriate in this context. An unmodified opinion with an emphasis-of-matter paragraph would be used if there were a matter that needed to be emphasized but was not an issue of compliance with accounting principles. A review report refers to providing less assurance through a different level of service than an audit, which does not fit the situation of a missing statement. Lastly, a disclaimer of opinion would be issued