Auditing: What You Need to Know

Question 1 

A qualified report will be issued, which includes an opinion paragraph that explains the uncertainty to emphasize the matter. With the qualified opinion, the doubt expressed does not need adjusting the opinion. However, if the client's disclosures about the continuity issue are substantially inadequate, the misstatement may lead to a qualified opinion. 

The opinion report should be dated on the date that the auditor obtains sufficient information and data as evidence that supports their opinion. 

The opinion issued will still be a qualified report. In this opinion, the auditor expresses their judgment about the financial statements presented in reference to the materials provided and the appropriate financial reporting framework. As an auditor, one is expected to provide and honest opinion that reflects the accurate and fair information concerning the financial performance of an organization. Thus, irrespective of whether an auditor is not independent of a company, they must provide an unbiased opinion, which shows that they can objectively perform their task. 

Question 2 

Substantial doubt about the client’s ability to continue as a going concern may arise when the client fails to meet the financial obligation and is experiencing adverse financial conditions that may lead to bankruptcy. Such a financial issue will occur when the client is faced with frequent operating losses, insufficient working capital, negative financial ratios, fails to pay off their loans, and has accumulating arrears in dividends. As a result, the client may be experiencing ongoing legal issues, legislation, a decreased number of principal customers, and may be forced to stop operating. All these circumstances are a sign that there is substantial doubt whether the client may continue to work. 

Once the auditor has discovered these circumstances, which may imply substantial doubt, they are expected to access and examine the management's strategies of dealing with the issues. After reviewing the viability of the management strategies and the auditor is confident that there is substantial doubt that the client may continue, they should ensure that the matter is reflected in the financial statements and must modify the audit report as well. 

Question 3 

Auditors rarely issue an adverse opinion as it is an indication that the company is engaged in wrong or unreliable accounting activities. An adverse opinion is an opinion expressed by the auditor and indicates that the client's financial statements are misrepresented, misstated, and have failed to provide accurate information concerning the financial performance of the organization. The adverse opinions are issued after the auditor has completed the auditor’s report, which can either be internal or independent of the organization. Therefore, the adverse opinion expressed can be detrimental to a company's reputation and performance within an industry. Investors consider an adverse opinion as a warning and may influence their decision to invest with the company. 

Nonetheless, auditors are inclined to issue an adverse opinion if the financial statements are compiled in a manner that ignores the generally accepted accounting principles (GAAP). Renowned companies that are publicly traded rarely receive an adverse opinion report since most of them adhere to the regular SEC filing regulations.