Audit Report: Types, Qualifications, Audit Opinion and Basic Elements of Audit Report Questions

Question 1

Define audit report.

Accepted Answer

An **audit report** is the written communication in which the auditor expresses an **opinion** on financial statements.

Question 2

What is an unmodified opinion?

Accepted Answer

An **unmodified opinion** means financial statements present a **true and fair view** (clean report).

Question 3

What is a qualified opinion?

Accepted Answer

A **qualified opinion** is given when misstatement/limitation is **material but not pervasive** ("except for" report).

Question 4

What is an adverse opinion?

Accepted Answer

An **adverse opinion** is given when misstatements are **material and pervasive**.

Question 5

What is disclaimer of opinion?

Accepted Answer

A **disclaimer** is issued when auditor cannot obtain sufficient evidence and therefore gives **no opinion**.

Question 6

What is Emphasis of Matter (EOM)?

Accepted Answer

**EOM** highlights an important matter already disclosed, **without modifying** the audit opinion.

Question 7

Explain the purpose/importance of audit report (any three points).

Accepted Answer

Audit report is important because it:
- Communicates auditor’s **opinion** to stakeholders.
- Increases **credibility** and reliability of financial statements.
- Helps users take decisions (loans, investment) and shows qualifications if any.

Thus it is the final output of audit.

Question 8

List types of audit opinions.

Accepted Answer

Types of audit opinions are: **Unmodified (clean)**, **Qualified**, **Adverse**, and **Disclaimer of opinion**.

The type depends on whether misstatements/limitations are **material** and **pervasive**.

Question 9

Differentiate between qualified and adverse opinion.

Accepted Answer

**Qualified opinion** is issued when misstatement/limitation is **material but not pervasive** ("except for"). **Adverse opinion** is issued when misstatements are **material and pervasive**, meaning statements do not present true and fair view.

So the difference is **pervasiveness**.

Question 10

Differentiate between adverse opinion and disclaimer of opinion.

Accepted Answer

**Adverse opinion** is given when auditor has sufficient evidence and concludes statements are materially and pervasively misstated.

**Disclaimer** is given when auditor cannot obtain sufficient evidence due to a pervasive scope limitation, so auditor gives **no opinion**.

Thus adverse = negative opinion; disclaimer = no opinion.

Question 11

State any three reasons for issuing a qualified report.

Accepted Answer

Reasons (any three):
- improper valuation of stock
- insufficient depreciation or provision
- non-compliance with accounting standards
- limitation of scope (records not available)

These cause material (but not pervasive) issues.

Question 12

List basic elements of an audit report (any six).

Accepted Answer

Basic elements (any six): **Title**, **Addressee**, **Opinion paragraph**, **Basis for opinion**, **Management responsibilities**, **Auditor responsibilities**, **Signature/date/place**.

These ensure clarity and authenticity of report.

Question 13

Define audit report and explain types of audit opinions. Add a simple decision flowchart.

Accepted Answer

**Audit report** is the written communication in which the auditor expresses an **opinion** on whether financial statements show a **true and fair view**.

### **Types of audit opinion**
- **Unmodified (clean)** opinion
- **Qualified** opinion
- **Adverse** opinion
- **Disclaimer of opinion**

### Opinion selection (flow)
```text
Problem? (misstatement/limitation)
  ↓
Material? (Yes/No)
  ↓
Pervasive? (Yes/No)
  ↓
Unmodified / Qualified / Adverse / Disclaimer
```

Thus, the audit report communicates the final conclusion of audit work.

Question 14

Differentiate between qualified, adverse and disclaimer of opinion with a table. Mention common reasons for qualification.

Accepted Answer

### **Qualified vs Adverse vs Disclaimer**
| Opinion | Reason | Meaning |
|---|---|---|
| **Qualified** | **Material but not pervasive** misstatement OR limitation not pervasive | **Except for** |
| **Adverse** | **Material and pervasive** misstatement | statements are not true & fair |
| **Disclaimer** | inability to obtain sufficient evidence; **pervasive limitation** | auditor gives **no opinion** |

### Common reasons for qualification
- improper stock valuation
- insufficient depreciation/provision
- non-compliance with standards
- scope limitation (missing records)

This table-based answer is very effective for exams.

Question 15

Write the basic elements of an audit report with a table/flow. Explain why each is important.

Accepted Answer

### **Basic elements of an audit report** (exam list)
| Element | Purpose |
|---|---|
| **Title** (Independent Auditor’s Report) | shows independence |
| **Addressee** | usually shareholders |
| **Opinion paragraph** | auditor’s conclusion |
| **Basis for opinion** | evidence/standards used |
| **Management responsibilities** | preparation & controls |
| **Auditor responsibilities** | audit procedures & opinion |
| **Signature, date, place** | authentication |

```text
Evidence → Evaluation → Opinion paragraph → Report issued
```

A well-structured report improves clarity and credibility for users.

Audit Report: Types, Qualifications, Audit Opinion and Basic Elements of Audit Report

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