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

What is the effect of omitting the statement of cash flows from financial statements on the auditor's opinion?

1. Mandatory incorporation of an emphasis paragraph

2. Leads to an unmodified opinion

3. Results in a qualified opinion

4. Only a review report can be issued

The correct answer is: Results in a qualified opinion

Omitting the statement of cash flows from financial statements affects the auditor's opinion because the statement is a required part of a complete set of financial statements under generally accepted accounting principles (GAAP). The statement of cash flows provides critical information about the company's cash inflows and outflows, highlighting the entity's liquidity and how it manages cash throughout the reporting period. When a financial statement lacks a necessary component like the statement of cash flows, it results in a departure from GAAP. In such cases, the auditor cannot conclude that the financial statements present a true and fair view of the company's financial position and results of operations. Therefore, the auditor issues a qualified opinion, indicating that while the financial statements are, in general, fairly presented, there is a significant limitation or omission that prevents a comprehensive view of the company's financial activities. A qualified opinion highlights the specific area of non-compliance but does not require a complete retraction of all other statements within the financials, which is why it is appropriate here. Clustered with the implications of an omitted cash flow statement, this ensures stakeholders are made aware of the limitations in the financial reporting framework.