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

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Under which circumstance would the expression of a disclaimer of opinion be inappropriate?

  1. The company refuses to include the related statement of cash flows.

  2. The chief financial officer refuses to sign the management representation letter.

  3. The auditor determines the extent of a pervasive employee fraud scheme.

  4. Management does not provide documentation verifying equipment ownership.

The correct answer is: The company refuses to include the related statement of cash flows.

In the context of audit opinions, a disclaimer of opinion generally indicates that the auditor is unable to obtain sufficient appropriate evidence to form an opinion on the financial statements. This could stem from a significant limitation of scope or a lack of access to necessary information. The scenario where a company refuses to include the related statement of cash flows is inappropriate for a disclaimer of opinion because the statement of cash flows is a required financial statement under generally accepted accounting principles (GAAP). The absence of this statement impacts the overall presentation and completeness of the financial statements. Therefore, the auditor cannot merely disclaim an opinion based on this refusal; it conveys a concern about the overall fairness of the financial reporting and would more likely lead the auditor to consider issuing an adverse opinion instead, as the opinion may not be based on the complete set of financial statements. In other scenarios, such as the refusal of the CFO to sign the management representation letter, the determination of pervasive fraud, or the lack of documentation for equipment ownership, the auditor can consider limitations in scope or evidence which might warrant a disclaimer. However, the fundamental integrity and completeness of the financial statements hinge critically on inclusion of all necessary components, such as the statement of cash flows. Thus, the refusal to include it directly impacts the overall

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