Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any physical inventories. These inventories account for 40% of the entity's assets. Alternative auditing procedures cannot be applied due to the nature of the entity's records. Under these circumstances, the auditor should express a(an):

Question

Quizplus · Accepted Answer

Choice "A" is correct. Since the auditor is unable to observe inventory or apply alternative audit procedures, a scope limitation exists. Due to the significance of the inventory balance (40% of total assets is quite material), a disclaimer of opinion (rather than simply a qualification) is appropriate. Choice "B" is incorrect. Since the inventory balance is so material, a qualified opinion is not sufficient in this case. Choice "C" is incorrect. An adverse opinion is not an appropriate response to a scope limitation. Choice "D" is incorrect. Since the scope limitation relates to a material balance, an unqualified opinion is not appropriate.

Restrictions Imposed by a Retail Entity That Is a New