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

In which scenario would the issuance of a disclaimer of opinion be the required response?

1. Insufficient audit evidence due to a scope limitation

2. Financial statements not conforming to GAAP

3. Significant deficiencies in internal controls

4. Minor misstatements found during the audit

The correct answer is: Insufficient audit evidence due to a scope limitation

A disclaimer of opinion is issued when there is insufficient appropriate audit evidence to form an opinion on the financial statements. This scenario typically arises from a scope limitation, which means that the auditor was unable to obtain enough evidence due to circumstances beyond their control, or possibly due to restrictions imposed by the client. In such cases, the auditor cannot express an opinion on whether the financial statements are free of material misstatement. This approach provides transparency to users of the financial statements regarding the auditor's inability to conclude on the overall fairness of the statements due to the lack of evidence. It highlights a critical aspect of the audit process: the necessity of obtaining sufficient evidence in order to form a reliable opinion. In contrast, instances involving financial statements that do not conform to GAAP might lead to an adverse opinion or a qualified opinion, not a disclaimer. Similarly, significant deficiencies in internal controls usually warrant a communication of findings rather than a disclaimer. Minor misstatements would generally be addressed through adjustments and may lead to a qualified opinion if they are not material. Thus, the requirement for a disclaimer directly correlates to situations where auditors face limitations that inhibit their ability to gather sufficient evidence.