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

Under what circumstance is a disclaimer of opinion not appropriate?

1. The client refuses to confirm accounts receivable.

2. The auditor cannot determine amounts due to fraud.

3. The CEO won't sign the management representation letter.

4. Management fails to justify a change in accounting principle.

The correct answer is: Management fails to justify a change in accounting principle.

A disclaimer of opinion is a type of audit opinion issued when an auditor is unable to form an opinion on the financial statements, often due to a scope limitation or uncertainty. Understanding when a disclaimer is appropriate is crucial for determining the auditor's responsibility and the reliability of the financial statements. In instances where management fails to justify a change in accounting principle, the auditor has sufficient information to assess the applicability of the accounting principle and its implications on the financial statements. While this may raise concerns that warrant disclosure or qualification, it does not reach the level of uncertainty or limitation that would necessitate a disclaimer of opinion. The auditor can evaluate whether the accounting principles used are in accordance with the applicable financial reporting framework and whether they are being applied consistently. In contrast, circumstances such as the client refusing to confirm accounts receivable, where there is a significant lack of corroborating evidence, or situations involving potential fraud, where the auditor is unable to determine the nature or amounts of financial statement entries, create a scenario where the scope of the audit is significantly limited. Similarly, not receiving a signed management representation letter from the CEO indicates a lack of necessary management assertions to support the financial statements. These instances typically would lead the auditor to consider issuing a disclaimer of opinion due to the inability