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

Which limitation on the scope of an audit is most likely to preclude an unmodified opinion?

1. Management's failure to disclose related party transactions

2. Management's refusal to provide an engagement letter

3. Management's inability to obtain audited financial statements of a subsidiary

4. Management's failure to correct a deficiency in internal control

The correct answer is: Management's inability to obtain audited financial statements of a subsidiary

An unmodified opinion indicates that the auditor has obtained sufficient appropriate audit evidence and found that the financial statements are free from material misstatement. When considering the choice regarding the inability to obtain audited financial statements of a subsidiary, it is crucial to recognize the significance of such an event in the context of the audit. If an auditor cannot obtain audited financial statements for a subsidiary, this creates a limitation on the scope of the audit. Since subsidiaries often contribute significantly to the overall financial statements of the parent company, the lack of transparency regarding the financial status of the subsidiary means the auditor cannot assess the full implications it might have on the consolidated financial statements. That prevents the auditor from gathering the necessary evidence to support an unmodified opinion on the parent company's financial statements, as there may be material misstatements that are undetectable due to this lack of information. In contrast, while the other choices present challenges and concerns, they do not inherently restrict the auditor's ability to form an opinion to the same extent. For instance, management's failure to disclose related party transactions might lead to a qualified opinion but not necessarily a scope limitation. Thus, the inability to obtain audited financial statements from a subsidiary stands out as a condition that directly impacts the auditor’s ability to provide an