Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

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Prepare for the Auditing and Attestation CPA Exam. Test your skills with multiple choice questions and comprehensive explanations. Ace your CPA exam!

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What circumstance most likely prompts an auditor to modify the audit opinion?

Concluding that financial statements are materially misstated.
The entity selects IFRS as the reporting framework.
Identifying an immaterial misstatement in financial statements.
Concluding that financial statements are presented fairly.

The correct answer is: Concluding that financial statements are materially misstated.

Modifying the audit opinion typically occurs when an auditor concludes that the financial statements are materially misstated. This means that the misstatements, whether due to fraud or error, affect the users' ability to make informed decisions based on the financial statements. A material misstatement represents a significant departure from the applicable financial reporting framework, leading the auditor to question the overall reliability of the financial statements. In scenarios where an auditor identifies immaterial misstatements, the overall integrity of the financial statements may still be intact, and therefore no modification to the opinion is warranted. The selection of IFRS as the reporting framework does not inherently signify a problem with the financial statements themselves; many entities use IFRS without issues that would require a modification. Finally, concluding that financial statements are presented fairly aligns with an unmodified opinion, indicating that the financial statements are free of material misstatement and that they are prepared in accordance with the relevant accounting standards.