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

If an auditor cannot get evidence for a foreign subsidiary's investment, what opinion might they choose?

1. Qualified or adverse opinion.

2. Adverse or unmodified with an emphasis-of-matter paragraph.

3. Disclaimer or unmodified with an emphasis-of-matter paragraph.

4. Qualified or disclaimer opinion.

The correct answer is: Qualified or disclaimer opinion.

When an auditor is unable to obtain sufficient appropriate evidence regarding a foreign subsidiary's investment, they face a significant issue that can affect their overall opinion on the financial statements. In such situations, the auditor must assess the impact of this lack of evidence on the financial statements as a whole. A qualified opinion is warranted when the auditor finds that there is a specific issue that affects the financial statements, but not to the extent that it renders the whole financial statement misleading. If the evidence concerning the foreign subsidiary is such that it could materially misstate the financials but the auditor can still work with the information obtained, a qualified opinion can be issued. This signals to users of the financial statements that there is a limitation in the scope of the audit due to an inability to obtain enough evidence for a particular area. On the other hand, a disclaimer of opinion is appropriate when the auditor is unable to obtain sufficient evidence to form any opinion on the financial statements. In this case, if the inability to gather evidence regarding the foreign subsidiary is pervasive enough to raise doubt about the financial statements as a whole, then a disclaimer of opinion becomes necessary. Given these considerations, the option of a qualified or disclaimer opinion aptly reflects the auditor's choices depending on the severity of the evidence limitation