Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

If an auditor identifies a persistent error in the financial statements, which course of action is expected?

1. Issue a qualified opinion.

2. Issue an unmodified opinion.

3. Issue an adverse opinion.

4. Create an emphasis-of-matter paragraph.

The correct answer is: Issue an adverse opinion.

In cases where an auditor identifies a persistent error in the financial statements, issuing an adverse opinion is the expected course of action. An adverse opinion indicates that the financial statements are materially misstated and do not present a true and fair view of the company’s financial position in accordance with the applicable financial reporting framework. A persistent error suggests that the issue is not isolated and raises concerns about the accuracy and reliability of the financial statements as a whole. This level of misstatement is serious enough to warrant a clear communication to the users of the financial statements that the information presented cannot be relied upon. This recommendation aims to protect the interests of stakeholders who need accurate information for decision-making. While issuing a qualified opinion could indicate that there is a specific area of concern, it does not fully capture the severity of a persistent error. An unmodified opinion would imply that the financials are free of material misstatements, which is inconsistent with the existence of a persistent error. Including an emphasis-of-matter paragraph would merely highlight a matter without indicating a problem with the overall presentation of the financial statements. Thus, issuing an adverse opinion is the necessary and appropriate response in such scenarios.