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

When modifying an independent auditor's report for a nonissuer, which statement is true?

1. Different paragraphs must be modified for qualified and adverse opinions.

2. The same paragraphs are modified for qualified opinions due to GAAP departures and scope limitations.

3. A disclaimer of opinion modifies the introductory paragraph.

4. Modifications only result in qualified opinions.

The correct answer is: The same paragraphs are modified for qualified opinions due to GAAP departures and scope limitations.

The correct understanding here centers around the treatment of different types of audit opinions, particularly how qualified opinions are presented in the auditor's report. When an auditor issues a qualified opinion due to GAAP departures or scope limitations, specific paragraphs are indeed modified. This includes the addition of an explanatory paragraph that describes the reasons for the qualification, as well as adjusting the opinion paragraph to reflect that the opinion is not entirely unqualified. The distinction lies in the fact that while both a qualified opinion and an adverse opinion indicate issues with the financial statements, the nature of those issues differs significantly. A qualified opinion allows for the majority of the financial statements to be presented fairly, except for certain issues, while an adverse opinion signifies that the financial statements do not present a true and fair view overall. Therefore, the way each is reported on requires different formats and language in the report. The modification process for each type of opinion is quite specific and structured to ensure clarity and compliance with auditing standards. This ensures that users of the financial statements are adequately informed about the nature of the auditor's findings.