Audit Reporting and Communication

Introduction and Context

The audit report is the principal public communication from the external auditor to users of financial statements. It converts the auditor’s evidence, professional judgment, and evaluation of misstatements into a formal conclusion about whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. Audit reporting is therefore not a clerical final step. It is the outcome of the entire audit process and a major source of confidence for shareholders, lenders, regulators, audit committees, and other stakeholders.

This chapter is based on the architecture of International Standards on Auditing (ISAs), especially ISA 700, ISA 705, ISA 706, ISA 701, ISA 720, and ISA 260. National legislation, stock-exchange rules, and professional standards may impose additional requirements. Students should therefore distinguish between the general international principles explained here and the precise reporting requirements applicable in their jurisdiction.

An auditor’s report does not guarantee that the financial statements are perfectly accurate, that fraud has not occurred, or that the entity will remain solvent. It provides reasonable assurance—not absolute assurance—that the financial statements as a whole are free from material misstatement, whether caused by fraud or error.

Learning Objectives

By the end of this chapter, a student should be able to:

1. Explain the purpose, structure, and evidential basis of an independent auditor’s report.
2. Distinguish an unmodified opinion from qualified, adverse, and disclaimer opinions.
3. Apply the decision logic for reporting material misstatements and scope limitations.
4. Explain the role of emphasis-of-matter paragraphs, other-matter paragraphs, and key audit matters.
5. Describe the auditor’s responsibilities concerning other information in an annual report.
6. Explain effective communication with management and those charged with governance.
7. Draft or evaluate important elements of an audit report in practical situations.
8. Recognize ethical, governance, technological, and regulatory issues affecting audit communication.

1. The Nature and Purpose of the Audit Opinion

The audit opinion addresses a specific question: whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. The auditor evaluates both the financial statements and the audit evidence obtained. The opinion is not an assessment of management quality, business success, investment attractiveness, or the entity’s future profitability.

A material misstatement is one that, individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Materiality involves both quantitative and qualitative considerations. A relatively small amount may be material if it masks a change from profit to loss, causes non-compliance with a loan covenant, or conceals an unlawful transaction.

The audit opinion is formed after the auditor has:

• obtained sufficient appropriate audit evidence;
• evaluated identified misstatements, including uncorrected misstatements;
• considered whether accounting policies are appropriate and consistently applied;
• evaluated accounting estimates and related disclosures;
• assessed the overall presentation, structure, and content of the financial statements;
• considered whether the financial statements adequately describe significant events and transactions; and
• concluded on relevant going-concern and other reporting matters.

The opinion must be based on professional judgment, professional skepticism, and compliance with applicable ethical requirements, including independence.

2. The Standard Structure of an Auditor’s Report

Although exact wording varies by jurisdiction and entity type, a standard independent auditor’s report normally contains the following sections:

The Opinion section should appear first under the modern ISA reporting model. This improves communication because users see the auditor’s conclusion before reading technical explanations.

Management’s responsibilities

Management is responsible for preparing financial statements in accordance with the applicable framework, designing and maintaining internal control relevant to preparation of those statements, and assessing the entity’s ability to continue as a going concern. Those charged with governance oversee the financial reporting process, although the precise allocation of responsibilities depends on the entity’s governance structure.

Auditor’s responsibilities

The auditor is responsible for obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement and issuing a report that includes an opinion. An audit includes risk assessment, tests of controls where appropriate, substantive procedures, evaluation of estimates and disclosures, consideration of fraud risk, and assessment of the overall presentation.

Because an audit is based on sampling, judgment, and the limitations of internal control, reasonable assurance is a high level of assurance but not absolute assurance. The auditor may not detect every misstatement, particularly where collusion, management override, forgery, or deliberate concealment is involved.

3. The Unmodified Opinion

An unmodified opinion is issued when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. This conclusion requires more than the absence of known errors. The auditor must also determine that:

• sufficient appropriate evidence has been obtained;
• identified misstatements are not material, individually or in aggregate, or have been corrected;
• accounting policies are appropriate;
• accounting estimates are reasonable in context;
• disclosures are adequate and understandable; and
• the financial statements faithfully represent the underlying transactions and events under the relevant framework.

An unmodified opinion does not mean that the entity has strong internal controls or that the auditor approves every management decision. Matters may still be communicated to management or those charged with governance even when the opinion is unmodified.

Going concern and an unmodified opinion

Going-concern circumstances do not automatically result in a modified opinion. If management has adequately disclosed a material uncertainty related to going concern and the auditor agrees that the disclosure is sufficient, the auditor may issue an unmodified opinion and include a separate section titled “Material Uncertainty Related to Going Concern.” If the disclosure is inadequate, the auditor generally modifies the opinion.

4. Modified Opinions

A modified opinion is required when the auditor concludes that the financial statements are materially misstated or cannot obtain sufficient appropriate audit evidence to conclude that they are free from material misstatement. ISA 705 identifies three types:

1. qualified opinion;
2. adverse opinion; and
3. disclaimer of opinion.

The correct type depends on two dimensions:

• the nature of the problem—misstatement or inability to obtain evidence; and
• the pervasiveness of the problem.

“Pervasive” means effects that are not confined to specific elements, accounts, or items; effects that, if confined, represent a substantial proportion of the financial statements; or effects that are fundamental to users’ understanding of the financial statements.

Qualified opinion

A qualified opinion states that, except for the effects—or possible effects—of the matter described in the Basis for Qualified Opinion section, the financial statements are fairly presented in accordance with the applicable framework.

A qualification is appropriate where the matter is material but not pervasive. For example, an auditor may identify an incorrect inventory valuation that materially overstates inventory but does not undermine the financial statements as a whole. A qualification may also result from a scope limitation, such as the loss of records for one material subsidiary, when the possible effects are material but not pervasive.

Adverse opinion

An adverse opinion is issued when the auditor has obtained sufficient appropriate evidence and concludes that misstatements are both material and pervasive. The financial statements do not present fairly, or do not give a true and fair view, in accordance with the applicable framework.

Examples include widespread failure to consolidate controlled subsidiaries, use of an inappropriate basis of accounting, or omission of disclosures that are fundamental to users’ understanding. An adverse opinion is a serious conclusion: it communicates that users should not rely on the financial statements as a proper presentation under the stated framework.

Disclaimer of opinion

A disclaimer is issued when the auditor cannot obtain sufficient appropriate evidence and concludes that the possible effects of undetected misstatements could be both material and pervasive. The auditor does not express an opinion on the financial statements.

A disclaimer is not a weaker form of qualified opinion. It communicates that the auditor’s evidence is insufficient to form a conclusion. Situations may include severe limitations imposed by management, loss of accounting records affecting several major components, or multiple uncertainties whose combined effects are pervasive.

The auditor must consider whether withdrawal from the engagement is possible and appropriate. Withdrawal does not eliminate reporting obligations imposed by law, regulation, or professional standards.

5. Decision Framework for Modified Opinions

A practical decision process is as follows:

1. Identify the matter and determine whether it concerns a known misstatement or inability to obtain evidence.
2. Evaluate the monetary and qualitative significance of the matter.
3. Determine whether the effect is material.
4. Assess whether the effect is pervasive.
5. Discuss the matter with management and those charged with governance.
6. Request correction or additional evidence where appropriate.
7. Select the opinion type and draft a clear Basis for Modified Opinion section.
8. Consider consequences for key audit matters, going concern, other information, and legal reporting.

The basis section should describe the matter sufficiently for users to understand why the opinion was modified. It should not disclose confidential information unnecessarily or use vague language that disguises the seriousness of the issue.

Worked application

Assume an entity reports total assets of $80 million. The auditor determines that inventory is overstated by $2 million because obsolete goods were not written down. The amount is material under the audit’s planning threshold, but inventory is only one component of the financial statements and the misstatement does not affect the statements in a pervasive manner. Management refuses to correct it.

The appropriate conclusion is normally a qualified opinion due to a known material but non-pervasive misstatement. The report would explain the inventory problem in the Basis for Qualified Opinion section and state that, except for its effects, the financial statements are presented in accordance with the framework.

If instead the auditor discovered that the entity had failed to consolidate several major controlled subsidiaries, the resulting misstatement might affect assets, liabilities, income, cash flows, and disclosures throughout the financial statements. If material and pervasive, an adverse opinion would be appropriate.

6. Emphasis-of-Matter and Other-Matter Paragraphs

An emphasis-of-matter paragraph draws users’ attention to a matter appropriately presented or disclosed in the financial statements that is fundamental to users’ understanding of those statements. The matter must not require a modified opinion.

Examples may include:

• a major litigation uncertainty that is adequately disclosed;
• a significant subsequent event disclosed in the financial statements; or
• a major catastrophe affecting the entity’s operations, when properly described.

An emphasis-of-matter paragraph does not replace a qualification. If disclosure is inadequate and the matter is material, the auditor modifies the opinion instead.

An other-matter paragraph concerns a matter not presented or disclosed in the financial statements but relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report. Examples may include restrictions on distribution of the report or explanation that comparative information was audited by a predecessor auditor, where appropriate under the applicable standards.

The auditor should use these paragraphs only when they improve communication. Excessive use can reduce their significance and confuse users about which matters affect the opinion.

7. Key Audit Matters

Key audit matters (KAMs) are those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements for the current period. They are selected from matters communicated with those charged with governance.

KAM reporting is generally required for listed entities and may be extended by law or regulation to other public-interest entities. KAMs are not a substitute for:

• a modified opinion;
• a material uncertainty related to going concern disclosure; or
• disclosure by management that is required by the financial reporting framework.

Selecting KAMs

The auditor begins with matters communicated to those charged with governance. From these, the auditor identifies matters that required significant auditor attention, considering areas of higher assessed risk, significant auditor judgments, and significant events or transactions. The auditor then determines which matters were of most significance.

A KAM section normally explains:

1. why the matter was considered one of most significance; and
2. how the matter was addressed in the audit.

The explanation should cross-reference relevant disclosures in the financial statements. It should describe audit procedures at a useful level without revealing confidential information or implying a separate opinion on the individual matter.

Common KAM areas include impairment of goodwill, revenue recognition in complex contracts, valuation of financial instruments, provisions for litigation, and recoverability of deferred tax assets.

A matter may be a KAM even when the opinion is unmodified. Conversely, a matter giving rise to a modified opinion is described in the Basis for Modified Opinion section and may also be identified as a KAM, but it should not be misleadingly presented as merely an ordinary matter of audit attention.

8. Other Information

Annual reports often contain information other than the audited financial statements and auditor’s report, such as a chair’s statement, management commentary, operating review, sustainability information, and selected financial highlights. This is “other information.”

The auditor does not ordinarily express an audit opinion on all other information. However, the auditor must read it and consider whether it is materially inconsistent with the audited financial statements or with knowledge obtained during the audit. The auditor also considers whether the other information appears materially misstated.

The auditor’s responses may include:

• discussing the apparent inconsistency with management;
• requesting correction of the other information;
• performing additional procedures where necessary;
• communicating the unresolved matter to those charged with governance; and
• describing an uncorrected material misstatement of other information in the auditor’s report, where required.

This responsibility is important because users may treat the annual report as a single integrated communication. A company cannot avoid scrutiny merely by placing misleading information outside the audited financial statements.

9. Communication with Management and Those Charged with Governance

Audit communication is a two-way process. The auditor communicates relevant matters, but also obtains information that may affect risk assessment, audit procedures, and reporting conclusions.

Management is ordinarily responsible for preparing the financial statements and correcting misstatements. Those charged with governance—such as a board, supervisory board, or audit committee—oversee financial reporting and accountability. In smaller entities, the same individuals may perform both management and governance roles.

Matters commonly communicated

The auditor may communicate:

• the planned scope and timing of the audit;
• significant risks and the auditor’s planned responses;
• significant deficiencies in internal control;
• significant difficulties encountered during the audit;
• significant accounting policies, estimates, and judgments;
• uncorrected misstatements and their effect, individually and in aggregate;
• disagreements with management;
• suspected fraud or non-compliance with laws and regulations;
• independence matters and permitted non-audit services;
• significant audit adjustments;
• going-concern concerns;
• expected modifications to the audit report; and
• KAMs and the proposed wording of the report.

Communication should occur sufficiently early to permit corrective action. A year-end meeting that merely announces an unexpected modified opinion is generally poor practice if the underlying issue was known months earlier.

Effective communication principles

Effective audit communication should be:

• clear rather than excessively technical;
• timely rather than retrospective;
• balanced, identifying both strengths and weaknesses;
• evidence-based and specific;
• respectful but independent;
• confidential and appropriately documented; and
• directed to the persons with authority to respond.

Written communication is particularly important for significant deficiencies, uncorrected misstatements, independence matters, and matters affecting the auditor’s report.

10. Ethics, Independence, and Governance

The credibility of an audit report depends on users believing that the auditor is independent in fact and appearance. Threats to independence include self-interest, self-review, advocacy, familiarity, and intimidation threats. For example, an auditor who designs an accounting system and then audits the resulting records may face a self-review threat.

The audit firm must identify, evaluate, and address threats through safeguards such as independent review, removal of conflicted personnel, separation of service teams, rotation where required, or declining the service. Some threats cannot be reduced to an acceptable level, requiring the firm to refuse or withdraw from the engagement.

Auditors must also protect confidentiality. Communication with governance is not a license to disclose client information to unauthorized persons. At the same time, confidentiality does not override legal duties to report money laundering, fraud, regulatory violations, or other matters where applicable law requires disclosure.

Audit committees have an important role in reviewing significant judgments, challenging management, overseeing auditor independence, and assessing whether the auditor’s report communicates matters useful to users. Strong governance improves the quality of both financial reporting and audit communication.

11. Technology and Contemporary Developments

Data analytics, automated testing, continuous auditing tools, and artificial intelligence can improve the identification and investigation of unusual transactions. They may help auditors analyze entire populations rather than samples, identify journal-entry anomalies, and compare narrative information across an annual report.

Technology does not transfer responsibility for the opinion to software. Auditors must understand the data source, completeness, accuracy, algorithmic logic, access controls, and false-positive or false-negative risks. AI-generated explanations may be fluent but unsupported. Professional skepticism remains necessary.

Contemporary reporting also includes increased attention to climate-related risks, cybersecurity incidents, supply-chain disruption, fair-value uncertainty, and sustainability information. Whether such matters affect the financial statements, other information, KAMs, or separate assurance engagements depends on their relevance, materiality, applicable standards, and the evidence available.

Auditors should avoid implying assurance over sustainability or other narrative information unless the engagement specifically provides that assurance. Clear boundaries between an audit opinion and other forms of assurance are essential.

12. Illustrative Case: Northbridge Manufacturing Ltd.

The following is a fictional illustrative case.

Background

Northbridge Manufacturing Ltd. is a listed producer of industrial equipment. At year-end, it reports substantial goodwill arising from an acquisition, a large inventory balance, and a refinancing agreement containing debt covenants. The annual report includes management commentary about strong demand and expected growth.

Problem

During the audit, the team identifies three matters:

1. Management’s impairment model assumes sales growth substantially above historical performance and excludes a recently lost customer.
2. Inventory includes slow-moving spare parts that should be written down; management refuses to record the full adjustment.
3. The refinancing agreement requires the entity to maintain a specified leverage ratio. The entity is close to breaching the covenant, and the matter is adequately disclosed as a material uncertainty related to going concern.

The auditor also observes that the management commentary describes inventory turnover as improving, although the audited data indicate deterioration.

Analysis

The impairment assessment requires significant auditor judgment and is likely to be a KAM because it involves a high-risk estimate and extensive evidence. The inventory issue is evaluated for materiality and pervasiveness. Assume the uncorrected inventory misstatement is material but not pervasive. The auditor therefore expects to issue a qualified opinion for the inventory misstatement.

The covenant and refinancing uncertainty may require a separate Material Uncertainty Related to Going Concern section because disclosure is adequate. This section does not replace the qualification. The impairment matter may be described as a KAM, with wording that clearly distinguishes it from the Basis for Qualified Opinion section.

The inconsistent management commentary is other information. Management should correct the statement about inventory turnover. If it refuses and the inconsistency remains materially misleading, the auditor follows the applicable other-information reporting requirements.

Approach and outcome

The auditor communicates the matters promptly to the audit committee, requests correction of the inventory records and management commentary, challenges the impairment assumptions, and performs sensitivity analysis. The committee supports correction of the commentary but management does not fully correct inventory. The final report contains:

• a qualified opinion for the material but non-pervasive inventory misstatement;
• a Material Uncertainty Related to Going Concern section concerning the covenant and refinancing;
• a KAM describing the goodwill impairment assessment; and
• reporting about the unresolved other-information inconsistency if required by the applicable standard.

Learning points

The case illustrates that one audit engagement may involve multiple reporting consequences. A modified opinion, a going-concern section, a KAM, and an other-information matter address different questions and must not be merged carelessly. It also demonstrates why early communication with governance is essential: communication creates an opportunity for correction before the report is signed.

13. Best-Practice Checklist for Report Preparation

Before signing an audit report, the engagement team should confirm that:

• the applicable reporting framework and legal requirements have been identified;
• the opinion agrees with the final audit conclusions;
• the Basis for Opinion or Basis for Modified Opinion section is accurate and complete;
• material misstatements have been evaluated individually and in aggregate;
• going-concern conclusions and disclosures are consistent with the report;
• KAMs are selected from matters communicated to governance and are clearly explained;
• other information has been obtained, read, and evaluated;
• management and governance communications are documented;
• independence and ethical requirements have been reassessed;
• the report date is not earlier than the date on which sufficient appropriate evidence has been obtained;
• subsequent events have been considered; and
• the wording is understandable to informed users without overstating the assurance provided.

Challenges and Limitations

Audit reporting involves unavoidable judgment. Materiality is not a mechanical percentage, pervasiveness can be difficult to evaluate, and users may misunderstand the difference between an audit opinion and a prediction about future performance. Complex financial instruments, estimates, fraud, litigation, and emerging technologies increase uncertainty.

There is also a communication tension. Reports must be sufficiently detailed to be useful but concise enough to remain readable. Excessive boilerplate reduces transparency, while excessive detail can disclose sensitive information or create a misleading impression of assurance. Professional standards provide structure, but high-quality reporting still depends on the auditor’s judgment, independence, and understanding of users’ information needs.

Chapter Summary

The auditor’s report communicates the conclusion reached from the audit evidence. An unmodified opinion is appropriate when the financial statements are prepared, in all material respects, in accordance with the applicable framework. A qualified opinion applies to a material but non-pervasive misstatement or scope limitation. An adverse opinion applies when known misstatements are material and pervasive, while a disclaimer applies when insufficient evidence prevents a conclusion and possible effects are material and pervasive.

Emphasis-of-matter paragraphs highlight important matters properly disclosed in the financial statements; other-matter paragraphs address relevant matters outside those statements. Key audit matters communicate matters of most significance in the audit but do not replace a modified opinion or required going-concern disclosure. Auditors also have responsibilities for other information in an annual report.

Effective communication with management and those charged with governance supports correction, strengthens oversight, and improves the quality of reporting. Independence, confidentiality, professional skepticism, technological competence, and careful distinction between audit assurance and other information are central to credible audit communication.

Key Terms

Audit opinion: The auditor’s formal conclusion on the financial statements.

Unmodified opinion: An opinion that the financial statements are prepared, in all material respects, in accordance with the applicable framework.

Modified opinion: A qualified opinion, adverse opinion, or disclaimer of opinion.

Material misstatement: A misstatement capable of influencing users’ economic decisions.

Pervasive: A description of effects that are widespread, substantial, or fundamental to users’ understanding.

Qualified opinion: An opinion modified for a material but non-pervasive misstatement or scope limitation.

Adverse opinion: An opinion that financial statements are materially and pervasively misstated.

Disclaimer of opinion: A statement that the auditor does not express an opinion because sufficient evidence cannot be obtained and possible effects are pervasive.

Scope limitation: A restriction preventing the auditor from obtaining necessary evidence.

Emphasis-of-matter paragraph: A paragraph highlighting a matter properly presented or disclosed in the financial statements.

Other-matter paragraph: A paragraph concerning a matter outside the financial statements that is relevant to understanding the audit or report.

Key audit matter: A matter of most significance in the audit, selected from matters communicated to those charged with governance.

Other information: Information accompanying audited financial statements in an annual report that is not itself covered by the audit opinion.

Those charged with governance: Persons responsible for overseeing the entity’s strategic direction and financial reporting accountability.

Reasonable assurance: A high, but not absolute, level of assurance.

Material uncertainty related to going concern: A condition indicating substantial doubt about continued operation, adequately disclosed where applicable.

Professional skepticism: An attitude involving a questioning mind and critical assessment of audit evidence.

Independence: Freedom from interests and relationships that compromise, or appear to compromise, impartiality.

Basis for opinion: The report section explaining the standards, independence, and evidence underlying the opinion.

Review Questions

Short Answer Questions

1. What is the difference between an unmodified opinion and a qualified opinion?
2. Define the term “pervasive” in the context of audit reporting.
3. What is the purpose of a key audit matter paragraph?
4. Why does an emphasis-of-matter paragraph not result in a modified opinion?
5. Identify two matters commonly communicated to those charged with governance.

Long Answer Questions

1. Explain the structure and purpose of the independent auditor’s report.
2. Compare qualified, adverse, and disclaimer opinions, including the circumstances in which each is appropriate.
3. Explain how an auditor selects and reports key audit matters.
4. Discuss the auditor’s responsibilities for other information in an annual report.
5. Evaluate the importance of independence, professional skepticism, and communication quality in credible audit reporting.

Analytical / Application Questions

1. An auditor identifies an uncorrected material error in one inventory category. The error does not affect other major balances and is not pervasive. Determine the likely opinion and explain the report structure.
2. A listed entity has adequately disclosed a major refinancing uncertainty that creates substantial doubt about going concern. The financial statements are otherwise fairly presented. Explain the likely audit reporting consequences.
3. Management’s annual-report narrative claims that liquidity improved, but audited evidence shows a significant deterioration. Management refuses to amend the narrative. Analyze the auditor’s responsibilities and possible communication or reporting response.

Multiple Choice Questions with Answers

Question 1

Which opinion is appropriate when financial statements contain a known material and pervasive misstatement?

A. Unmodified opinion

B. Qualified opinion

C. Adverse opinion

D. Disclaimer of opinion

Correct Answer: C. Adverse opinion

Question 2

A qualified opinion is generally appropriate when a matter is:

A. Immaterial and isolated

B. Material but not pervasive

C. Pervasive but not material

D. Unknown and irrelevant

Correct Answer: B. Material but not pervasive

Question 3

What is the principal purpose of an emphasis-of-matter paragraph?

A. To modify the audit opinion automatically

B. To highlight a matter properly presented or disclosed in the financial statements

C. To report management fraud as a separate opinion

D. To replace the Basis for Opinion section

Correct Answer: B. To highlight a matter properly presented or disclosed in the financial statements

Question 4

Key audit matters are selected from matters communicated to:

A. Customers

B. Tax authorities only

C. Those charged with governance

D. The entity’s competitors

Correct Answer: C. Those charged with governance

Question 5

Which statement about reasonable assurance is correct?

A. It guarantees detection of every fraud

B. It is identical to absolute assurance

C. It is a high but not absolute level of assurance

D. It applies only to internal audits

Correct Answer: C. It is a high but not absolute level of assurance

Question 6

If the auditor cannot obtain sufficient evidence and the possible effects are material and pervasive, the appropriate opinion is normally a:

A. Qualified opinion

B. Unmodified opinion

C. Adverse opinion

D. Disclaimer of opinion

Correct Answer: D. Disclaimer of opinion

Question 7

Which item is normally considered other information?

A. The audited statement of financial position

B. The auditor’s opinion

C. Management commentary in an annual report

D. The audit working-paper file

Correct Answer: C. Management commentary in an annual report

Question 8

An adverse opinion differs from a disclaimer because an adverse opinion is based on:

A. Sufficient evidence of material and pervasive misstatement

B. No evidence at all

C. An immaterial scope limitation

D. Adequate disclosure of going concern

Correct Answer: A. Sufficient evidence of material and pervasive misstatement

Question 9

Which matter should generally be communicated to those charged with governance?

A. Only the auditor’s invoice

B. Significant deficiencies in internal control

C. The auditor’s personal investment strategy

D. Unrelated industry gossip

Correct Answer: B. Significant deficiencies in internal control

Question 10

If a material uncertainty related to going concern is adequately disclosed and the financial statements are otherwise fairly presented, the auditor may issue:

A. An unmodified opinion with an appropriate going-concern section

B. An automatic adverse opinion

C. An automatic disclaimer

D. No report at all

Correct Answer: A. An unmodified opinion with an appropriate going-concern section