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

Under what circumstance might an auditor issue a qualified opinion?

1. When financial statements are prepared on a GAAP basis

2. When the basis of presentation is appropriate under the circumstances

3. When there is insufficient audit evidence regarding one or more accounts

4. When the financial statements are misleading

The correct answer is: When there is insufficient audit evidence regarding one or more accounts

A qualified opinion is issued by an auditor when there are specific issues that prevent them from expressing an unqualified (clean) opinion on the financial statements, while still indicating that the statements present a fair view of the entity’s financial position in accordance with the applicable financial reporting framework. In this case, the correct choice aligns with the scenario where the auditor has encountered insufficient audit evidence regarding one or more accounts. Insufficient evidence may arise due to various reasons such as inadequate records, inability to obtain confirmations, or limitations imposed by the client. This situation does not necessarily indicate that the financial statements are fundamentally flawed but rather indicates that the auditor is unable to gather enough reliable information to provide a full assurance on certain aspects. Therefore, they typically express a qualified opinion, communicating to users that except for the effects of the issue related to the insufficient evidence, the financial statements are fairly presented. The other scenarios do not indicate a situation where a qualified opinion would be appropriate. When financial statements are prepared on a GAAP basis or when the basis of presentation is appropriate under the circumstances, it suggests compliance and adequate presentation, which typically supports an unqualified opinion. Misleading financial statements could lead to an adverse opinion, as this represents a more severe departure from the reporting standards