ExpertHard1 markMultiple Choice
CPA · Question 29 · Area IV: Reporting
An auditor is issuing a report on compliance with contractual agreements in connection with the audit of financial statements. The auditor expressed an adverse opinion on the financial statements. Can the auditor issue a report on compliance providing negative assurance?
An auditor is issuing a report on compliance with contractual agreements in connection with the audit of financial statements. The auditor expressed an adverse opinion on the financial statements. Can the auditor issue a report on compliance providing negative assurance?
Answer options:
A.
Yes, provided the compliance report is in a separate document.
B.
Yes, provided the auditor identifies the specific covenants tested.
C.
No, negative assurance on compliance is prohibited when an adverse opinion is issued on the financial statements.
D.
No, unless the compliance report is restricted use.
How to approach this question
Rule: You cannot give 'negative assurance' (saying nothing is wrong) on compliance if you just said the whole financial statement is wrong (Adverse/Disclaimer).
Full Answer
C.No, negative assurance on compliance is prohibited when an adverse opinion is issued on the financial statements.✓ Correct
Negative assurance on compliance ('nothing came to our attention') is only permitted when the auditor has expressed an unmodified or qualified opinion on the financial statements. If an adverse or disclaimer of opinion is issued, negative assurance on compliance is prohibited because the financial statements themselves are not reliable.
Common mistakes
Thinking 'Restricted Use' fixes this issue.
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