When an adverse opinion is expressed on the financial statements of a nonpublic company,the opinion paragraph should include a direct reference to:
A)A note to the financial statements which discusses the basis for the opinion.
B)The auditor's responsibility section of the audit report which discusses the basis for the opinion rendered.
C)A separate basis for modification paragraph (section).
D)The consistency in the application of generally accepted accounting principles.

Question

Quizplus · Accepted Answer

A nonpublic company should include a separate basis for modification paragraph (section) when an adverse opinion is expressed on the financial statements in order to provide a clear explanation for the basis of the opinion. The basis for modification paragraph should identify the specific reasons for the adverse opinion, such as a departure from GAAP or a scope limitation. References to notes, the auditor's responsibility section, or consistency in GAAP application would not provide the necessary level of detail and clarity required for an adverse opinion.

When an Adverse Opinion Is Expressed on the Financial Statements