A client has capitalizable leases but refuses to capitalize them in the financial statements.Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?
A)Qualified opinion.
B)Unmodified opinion.
C)Disclaimer of opinion.
D)Adverse opinion.

Question

Quizplus · Accepted Answer

If the client refuses to capitalize leases that should be capitalized and the amounts pervasively distort the financial statements, the auditor should issue an adverse opinion. This opinion signals that the financial statements are materially misstated and do not present fairly the financial position, results of operations, or cash flows of the entity in accordance with the applicable financial reporting framework. The adverse opinion describes the nature and magnitude of the misstatements and explains why the auditor concluded that the financial statements are materially misstated. It is the most severe form of audit opinion and should be issued only when the auditor concludes that the misstatements are material and pervasive and the client is unwilling to correct them.

A Client Has Capitalizable Leases but Refuses to Capitalize Them