A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the misstatements have a material and pervasive effect on the financial statements?
A)Qualified opinion.
B)Unmodified opinion.
C)Disclaimer of opinion.
D)Adverse opinion.

Question

Quizplus · Accepted Answer

If the auditor concludes that the refusal to capitalize the leases has a material and pervasive effect on the financial statements, the auditor would issue an adverse opinion. This is because the refusal to capitalize the leases is a violation of GAAP and has a significant impact on the financial statements, rendering them materially misstated.

A Client Has Capitalizable Leases but Refuses to Capitalize Them