What does adverse opinion mean on the CPA exam?
Adverse opinion. The opinion given when misstatements are both material and pervasive, so the statements are not fair at all. Pervasiveness, not size, is what separates it from a qualified opinion.
Defined against AU-C 705.09.
Which CPA exam sections use adverse opinion?
Adverse opinion appears in 6 CPA exam sections: AUD, BAR, FAR, ISC, REG, TCP.
What is the difference between adverse opinion and qualified opinion?
Both report a misstatement the auditor could not accept. A qualified opinion says the statements are fair EXCEPT FOR one matter that is material but not pervasive. An adverse opinion says the statements are not fair at all, which is what pervasive means. Pervasiveness, not size, is the line between them. (AU-C 705)
Other terms defined against AU-C 705
- disclaimer of opinion: The auditor states that no opinion is expressed, because they could not get evidence and the possible effect is pervasive.
- qualified opinion: The opinion given when a misstatement is material but not pervasive, or when evidence the auditor could not obtain would have been.
- qualified or adverse: The two modified opinions used when the auditor has the evidence but disagrees with the statements: qualified when the effect is material, adverse when it is also pervasive.
- scope limitation: Anything that stops the auditor obtaining evidence they judged necessary, whether imposed by the client or by circumstance.
Related terms
- unqualified opinion: The clean opinion: the statements are presented fairly in all material respects.
- auditor's opinion: The conclusion the audit exists to produce.
- significant risk: A risk of material misstatement that warrants special audit attention because of its likelihood or its size.