What happens to the audit report when there is a scope limitation that is immaterial? Material? Pervasive?

1. The audit report is not affected.
2. The audit report is modified to include the scope limitation.
3. The audit report is modified to include the scope limitation and a qualified opinion is issued.
4. The audit report is modified to include the scope limitation and an adverse opinion is issued.

Question

02-05-2024
Business

High School

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What happens to the audit report when there is a scope limitation that is immaterial? Material? Pervasive?

1. The audit report is not affected.
2. The audit report is modified to include the scope limitation.
3. The audit report is modified to include the scope limitation and a qualified opinion is issued.
4. The audit report is modified to include the scope limitation and an adverse opinion is issued.

Answer :

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suchitakm42 suchitakm42 · Answer 1 · 2023-11-23T18:57:44-05:00

Final answer:

The impact of a scope limitation on an audit report depends on its materiality and pervasiveness. An immaterial limitation does not affect the report, while a material limitation leads to a modified report with a qualified or adverse opinion.

Explanation:

When an auditor encounters a scope limitation during an audit, the impact on the audit report depends on the materiality and pervasiveness of that limitation. Here is how the audit report is affected:

If the scope limitation is immaterial, the audit report is generally not affected (option 1).
If the scope limitation is material but not pervasive, the audit report is modified to include the scope limitation, and a qualified opinion is usually issued (option 3).
If the scope limitation is both material and pervasive, the audit report is modified to include the scope limitation, and an adverse opinion or a disclaimer of opinion is issued (option 4) depending on whether the auditor can form an opinion on the financial statements as a whole.

In summary, the decision to modify the audit report and the type of opinion expressed are based on the severity and impact of the scope limitation on the ability to audit the financial statements effectively.