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

What must be included in the opinion paragraph when an auditor expresses an adverse opinion?

1. A summary of the financial results

2. A reference to the basis for the opinion

3. An explanation of audit procedures

4. A conclusion regarding overall fairness

The correct answer is: A reference to the basis for the opinion

When an auditor expresses an adverse opinion, it is essential to include a reference to the basis for this opinion in the opinion paragraph. This is because an adverse opinion indicates that the financial statements are not presented fairly in accordance with the applicable financial reporting framework. By referencing the basis for the opinion, the auditor informs users of the specific reasons that led them to conclude that the financial statements are materially misstated or misleading. This provides essential context, allowing stakeholders to understand the fundamental issues that affected the auditor's judgment. For example, the basis might include significant discrepancies, misapplication of accounting principles, or inadequate disclosures. Including such a reference reinforces the credibility of the auditor's opinion and helps users grasp the severity of the misstatements identified during the audit. Including a summary of the financial results, an explanation of audit procedures, or a conclusion regarding overall fairness is not typically appropriate in the opinion paragraph of an adverse opinion. The focus needs to be on the reasons for the adverse conclusion rather than summarizing the results or audit steps. These elements are generally covered in other sections of the audit report but not specifically required in the opinion paragraph.