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

What must an auditor do if they are unable to determine the amounts associated with illegal acts committed by management?

1. Issue an unmodified opinion

2. Express a disclaimer of opinion

3. Provide a qualified opinion

4. Issue an adverse opinion

The correct answer is: Express a disclaimer of opinion

When an auditor is unable to determine the amounts associated with illegal acts committed by management, expressing a disclaimer of opinion is the appropriate course of action. This situation arises because the inability to ascertain the financial impact of illegal acts can significantly limit the scope of the audit. A disclaimer of opinion indicates that the auditor cannot provide assurance on the financial statements due to the lack of evidence or the presence of uncertainties that could not be resolved. This type of opinion communicates to users of the financial statements that there are significant issues that prevent the auditor from forming an opinion on the fairness of the financial statements. In cases involving illegal acts, especially when they are related to management, the auditor may not have access to sufficient appropriate audit evidence to quantify the financial implications, thus resulting in a disclaimer. In contrast, issuing an unmodified opinion implies that the financial statements present a true and fair view without any reservations, which would not be justifiable in this context. A qualified opinion suggests that there is a significant uncertainty but still allows the auditor to express some level of assurance; however, if the illegality is pervasive, it often warrants a disclaimer instead. An adverse opinion is used when the financial statements are misleading or do not comply with accounting standards, which is not directly applicable if