ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which type of opinion is expressed when there are material misstatements that are also pervasive?

1. Qualified opinion

2. Adverse opinion

3. Unmodified opinion

4. Disclaimer of opinion

The correct answer is: Adverse opinion

When there are material misstatements in the financial statements that are also pervasive, the appropriate type of opinion to express is an adverse opinion. This type of opinion signifies that the financial statements as a whole are not presented fairly in accordance with the applicable financial reporting framework. The presence of pervasive and material misstatements indicates that the discrepancies are not limited to specific areas or amounts but could affect the decisions of users of the financial statements. An adverse opinion alerts stakeholders that they should not rely on the financial statements for accurate information, as the misstatements are significant enough to potentially mislead those who are using the statements for economic decision-making. In contrast, a qualified opinion would be used if the misstatements were material but not pervasive, meaning they could be confined to specific portions of the financial statements rather than affecting the entire body of work. An unmodified opinion would indicate that the financial statements are free from material misstatements and therefore provide a true and fair view, which is not the case here. A disclaimer of opinion is appropriate when the auditor cannot obtain sufficient appropriate audit evidence to form an opinion on the financial statements, which is not directly related to the existence of misstatements. Thus, when misstatements are both material and pervasive