When is an adverse audit opinion generally appropriate?
Correct answer: A. When financial statements contain material and pervasive misstatements
- A. When financial statements contain material and pervasive misstatements
- B. When the auditor finds no material misstatement
- C. When the auditor cannot attend the inventory count but obtains other evidence
- D. When management corrects all material errors before the report date
Explanation
An adverse opinion is issued when misstatements are both material and pervasive, so the financial statements do not present fairly. A limitation on evidence may instead lead to a qualified opinion or disclaimer, depending on its severity.
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Auditing examines accounting records and financial statements to determine whether they present a reliable and fairly stated position. The subject covers audit objectives, internal controls, audit evidence, materiality, vouching, verification, working papers, auditor independence, audit reports, and the distinction between an audit and accounting or investigation.
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