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

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Why might an auditor issue a disclaimer of opinion?

  1. Management's refusal for written representations.

  2. A material departure from GAAP.

  3. Inadequate disclosure of information.

  4. The omission of the statement of cash flows.

The correct answer is: Management's refusal for written representations.

An auditor may issue a disclaimer of opinion when they encounter significant limitations that prevent them from obtaining sufficient appropriate audit evidence. In this case, if management refuses to provide written representations, it creates a substantial barrier for the auditor. Written representations from management serve as an important source of corroborating evidence regarding the financial statements and internal controls. Without these representations, the auditor cannot ascertain whether they have obtained enough evidence to form a reliable opinion, leading them to issue a disclaimer. This situation is particularly significant because the lack of cooperation from management can imply that there are uncertainties or potential issues with the financial statements. A disclaimer indicates that the auditor does not express an opinion on the financial statements and reflects the seriousness of the limitations caused by management's refusal. In contrast, material departures from GAAP, inadequate disclosure of information, or the omission of the statement of cash flows typically may lead to different types of opinions, such as qualified opinions or adverse opinions, rather than a disclaimer. These scenarios indicate problems within the financial statements that the auditor can assess and report on, whereas a disclaimer directly arises from an inability to gather sufficient evidence due to management's actions.