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

What does the inclusion of a separate paragraph about significant transactions with related parties do to an unmodified opinion?

1. It qualifies the opinion.

2. It is appropriate and does not negate the unmodified opinion.

3. It violates auditing standards if disclosed in footnotes.

4. It necessitates revising the opinion statement.

The correct answer is: It is appropriate and does not negate the unmodified opinion.

The inclusion of a separate paragraph about significant transactions with related parties provides essential context and transparency regarding the financial statements without altering the overall opinion of the auditor. When an auditor issues an unmodified opinion, it indicates that the financial statements present a true and fair view in all material respects. Adding a paragraph focusing on related-party transactions is a communication technique used to ensure that users of the financial statements are aware of these potentially sensitive or significant transactions that could affect users’ understanding of the financial reports. This additional paragraph reinforces the integrity of the unmodified opinion by ensuring that all relevant information is disclosed, allowing stakeholders to make informed decisions. It does not imply any limitation on the audit or suggest any material misstatement, thereby maintaining the strength of the unmodified opinion. The other options imply that such disclosures would adversely affect the opinion or violate standards, which does not align with the purpose of these disclosures and the nature of an unmodified opinion. An unmodified opinion signifies that the audit achieved its objective, and the inclusion of relevant details enriches that perspective without necessitating changes to the opinion itself.