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

Under which circumstance would a disclaimer of opinion not be appropriate?

1. The client refuses to provide requested information

2. Inadequate disclosure of related party transactions

3. The auditor cannot verify physical inventories

4. Unable to determine amounts related to illegal acts

The correct answer is: Inadequate disclosure of related party transactions

A disclaimer of opinion is issued by an auditor when there are significant uncertainties or limitations on the scope of the audit that prevent the auditor from forming an opinion on the financial statements as a whole. In the case of inadequate disclosure of related party transactions, it is generally not appropriate to issue a disclaimer of opinion. Instead, the auditor may choose to issue a qualified opinion. This is because while the lack of disclosures can affect the adequacy of the financial statements in terms of fairness or transparency, it doesn't inherently indicate a complete inability to obtain sufficient appropriate audit evidence across the entirety of the financial statements. The auditor can still form an opinion on the overall statements; however, they will highlight the inadequacy of the related party disclosures as a significant issue in the audit report. In contrast, the other situations presented can lead to a disclaimer of opinion due to the nature and extent of the scope limitations or uncertainties involved. For instance, if the client refuses to provide requested information, or if the auditor cannot verify physical inventories, these circumstances would usually prevent the auditor from gathering enough evidence to form any opinion at all. Similarly, if there are illegal acts and the auditor can't determine the related amounts, this could also obstruct the ability to provide a meaningful opinion, leading the