Lectures 11 & 12

The auditor is saying: “The financial statements are mostly okay, except for one important problem.” This happens when there is a material issue, but it is not pervasive. Example: inventory is misstated, but the rest of the statements are fine.

This is not a modified opinion. The auditor is still saying the statements are okay, but wants to draw special attention to something important that is already properly disclosed in the notes. Example: a major fire after year-end, or an important uncertainty that users should notice.

The auditor is saying: “The financial statements are seriously wrong overall.” This is used when the misstatement is material and pervasive. Example: revenue, assets, and liabilities are so badly misstated that the statements as a whole cannot be trusted.

The auditor is saying: “I cannot give an opinion at all.” This happens when the auditor could not obtain enough evidence, and the possible effect is material and pervasive. Example: the auditor was denied access to major accounting records, so they cannot determine whether the statements are reliable.