Harris & Thompson were engaged to audit Smart Corp's comparative financial statements for the years ended December 31, Year 1 and Year 2. The Year 1 financial statements were presented in accordance with generally accepted accounting principles, but the Year 2 financial statements were determined to be materially misstated. As a result, Harris & Thompson should
A)issue a qualified opinion on the comparative financial statements as a whole.
B)issue an unqualified opinion on the Year 1 financial statements and disclaim an opinion on the Year 2 financial statements.
C)issue an unqualified opinion on the Year 1 financial statements and a qualified opinion on the Year 2 financial statements.
D)reissue the previous opinion on the Year 1 financial statements and withdraw from the engagement.

Question

Quizplus · Accepted Answer

Since the Year 2 financial statements were materially misstated, Harris & Thompson cannot issue an unqualified opinion on the comparative financial statements as a whole. They also cannot disclaim an opinion on the Year 2 financial statements since they were engaged to audit them. The appropriate course of action is to issue an unqualified opinion on the Year 1 financial statements and a qualified opinion on the Year 2 financial statements, disclosing the nature of the material misstatement. This allows users of the financial statements to make informed decisions about the reliability of the information presented.

Harris & Thompson Were Engaged to Audit Smart Corp's Comparative