Question

Departures from GAAP. For each of the following departures from GAAP, indicate the type of opinion that the auditors would issue as well as any modifications that would be made to the standard (unmodified) report.
a. A departure that had an immaterial effect on the financial statements.
b. A departure that had a material effect on the financial statements (this effect was not pervasive and affected only one account).
c. A departure that had a material effect on the financial statements and was pervasive (affected a number of accounts on both the balance sheet and income statement).

Answer 1

Answer:

a. Standard Unmodified Report.

b. Qualified Opinion.

c. Standard Modified Report, Adverse opinion.

Explanation:

Modified report is often issued by auditors when there is not any type of material misstatement in the financial statements. Usually a emphasis of matter paragraph is issued with a report which provides guidance to make the financial statements clear from material misstatement and transparent.