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

Which condition would make an unmodified opinion inappropriate?

1. Year-end balances are not comparable

2. Statements are prepared on an income tax basis

3. Inability to obtain audited statements of a subsidiary

4. Deficiencies in internal control are noted

The correct answer is: Inability to obtain audited statements of a subsidiary

An unmodified opinion expresses that the financial statements present a true and fair view in accordance with the applicable financial reporting framework. For such an opinion to be deemed appropriate, the auditor must have sufficient appropriate audit evidence to conclude that the financial statements are free from material misstatements. In the case where there is an inability to obtain audited statements of a subsidiary, it represents a significant limitation on the audit evidence available to the auditor. Without access to this information, the auditor cannot adequately assess whether the subsidiary's financial information is correctly reflected in the consolidated financial statements. This limitation can lead to potential material misstatements going undetected, making it impossible to issue an unmodified opinion. Other conditions mentioned may not necessarily preclude an unmodified opinion. For instance, if year-end balances are not comparable, this could still be appropriately disclosed in the financial statements without affecting the overall opinion. Similarly, financial statements prepared on an income tax basis or noted deficiencies in internal control could still allow for an unmodified opinion, provided these issues are adequately addressed or disclosed. However, the inability to obtain necessary audit evidence from a subsidiary represents a fundamental barrier to forming an unmodified opinion.