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

When an auditor qualifies an opinion due to insufficient audit evidence, where should the reasons for this inability be included?

1. Management's Responsibility paragraph

2. Basis of Qualified Opinion paragraph

3. Both Management's Responsibility and Basis of Qualified Opinion

4. Nowhere in the report

The correct answer is: Basis of Qualified Opinion paragraph

When an auditor qualifies an opinion due to insufficient audit evidence, it is essential to communicate the reasons for this qualification clearly and transparently in the audit report. The appropriate section for detailing the auditor's reasoning is the Basis of Qualified Opinion paragraph. This paragraph serves to explain the circumstances that led to the qualification. It describes specifically what limitations on evidence were encountered and how these limitations affect the overall opinion on the financial statements. By including this information, the auditor provides clarity to the users of the financial statements regarding the reasons for the qualification, allowing them to understand the implications of the insufficient evidence on the overall reliability of the financial statements. The Management's Responsibility paragraph is primarily focused on detailing what management is responsible for in terms of financial statement preparation and maintaining internal controls. While significant, it does not address the auditor's concerns regarding evidence in relation to the audit work performed. Including the reasoning in both the Management's Responsibility and Basis of Qualified Opinion paragraphs might create redundancy, as the nature of a qualified opinion relies heavily on the explanation of the evidence limitation found in the Basis of Qualified Opinion. It is important that such qualifications be restricted to the relevant sections of the report to ensure clarity and conciseness. Therefore, the Basis of Qualified Opinion paragraph is the correct