Auditing and Attestation - Certified Public Accountant (CPA) Practice Exam 2025 - Free CPA Practice Questions and Study Guide

When financial statements contain pervasive errors, an adverse opinion should be issued. This type of opinion indicates that the financial statements do not fairly present the financial position or the results of operations in conformity with the applicable financial reporting framework. The use of the term "pervasive" denotes that the effects of the errors are not confined to specific areas; rather, they impact a large portion of the financial statements, possibly misleading users.

An adverse opinion serves to alert users that the financial statements are fundamentally flawed and cannot be relied upon for decision-making. It is the most severe type of opinion an auditor can provide and signifies that financial statement users should be cautious, as the inaccuracies could affect their assessments and evaluations regarding the entity’s financial health.

In contrast, an unmodified opinion would suggest that the financial statements are free from material misstatements, which is not the case here. A qualified opinion, on the other hand, is issued when there is a material misstatement, but it is not pervasive, meaning the financial statements are still largely reliable except for specified areas. A disclaimer opinion would indicate that the auditor was unable to obtain sufficient appropriate audit evidence, thus not expressing an opinion on the financial statements at all.