ACCA Advanced Audit and Assurance (AAA) Practice Exam

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What does an adverse opinion indicate about the financial statements?

  1. The financial statements are free of material misstatements

  2. The financial statements have material but not pervasive misstatements

  3. The financial statements contain material and pervasive misstatements

  4. The auditor could not obtain sufficient evidence

The correct answer is: The financial statements contain material and pervasive misstatements

An adverse opinion indicates that the financial statements contain material and pervasive misstatements, which significantly undermine the reliability of the financial reporting. When an auditor expresses this type of opinion, it means that the misstatements are not only material—meaning they could influence the decisions of users of the financial statements—but also pervasive, suggesting that the effects of these misstatements are extensive and affect the financial statements as a whole. In this context, an adverse opinion serves as a serious warning to users of the financial statements, indicating that the financial reports do not accurately represent the financial position or performance of the entity in accordance with the applicable financial reporting framework. This opinion is typically given when the misstatements affect multiple areas of the financial statements and lead to a significant misrepresentation of the financial position or results of operations.

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