The audit report with a disclaimer of opinion is issued when the auditor cannot obtain sufficient and appropriate audit evidence on the financial statement. Further, auditors believe this inability/scope limitation’s impact seems materially pervasive.
Materially pervasive means the impact of misstatement is not limited to specific account balances but to financial statements as a whole.
The following are some circumstances in which an auditor must issue this type of opinion.
Circumstances when auditor forms disclaimer of opinion
- The auditor is unable to access the business’s accounting record.
- Audit client not maintained adequate accounting record.
- Auditor’s inability to access the subsidiary company’s financial statements and accounting records.
- Auditor not given sufficient time to perform audit procedures or obtain sufficient & appropriate audit evidence.
- Management is not providing representations on the key audit areas.
Overall, the disclaimer of opinion stands for the following factors.
- Misstatement is materially pervasive.
- Auditor unable to obtain sufficient and appropriate audit evidence (scope limitation)
Wrap up
The auditor can issue a disclaimer of opinion when a financial statement contains material & pervasive misstatements due to scope limitations/auditor’s inability to obtain sufficient and appropriate audit evidence. Material and pervasive means the misstatement comes with the ability to impact the overall financial statement.
Disclaimer is issued in certain circumstances when auditors cannot access accounting records or when some situation prevents them from obtaining sufficient and appropriate audit evidence.
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