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

What type of opinion should an auditor express if financial statements are prepared using non-GAAP accounting principles?

1. Unmodified opinion

2. Qualified opinion

3. Adverse opinion

4. Disclaimer of opinion

The correct answer is: Adverse opinion

In the scenario where financial statements are prepared using non-GAAP accounting principles, the auditor should express an adverse opinion. This is because non-GAAP financial statements do not adhere to Generally Accepted Accounting Principles (GAAP), which are the standard framework of guidelines for financial accounting. An adverse opinion indicates that the financial statements are materially misstated and do not present a true and fair view of the entity's financial position, results of operations, or cash flows in accordance with GAAP. It reflects significant departures from the accepted accounting standards, which could mislead users of the financial statements regarding the entity’s financial health. In contrast, options like unmodified opinions are applicable when the statements are in compliance with GAAP and present fairly, while qualified opinions indicate that there are certain issues but the financial statements still generally conform to GAAP. A disclaimer of opinion would generally be issued when the auditor cannot obtain sufficient appropriate evidence to form an opinion, often due to scope limitations. Thus, when financial statements are prepared using non-GAAP principles, an adverse opinion is the appropriate response to reflect the significant deviations from standard accounting practices.