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

When can an auditor not issue a qualified opinion?

1. A scope limitation prevents completing an important procedure.

2. The financial statements depart significantly from GAAP.

3. The auditor cannot observe the physical inventory count.

4. The auditor lacks independence regarding the audited entity.

The correct answer is: The auditor lacks independence regarding the audited entity.

An auditor cannot issue a qualified opinion when they lack independence regarding the audited entity. Independence is a fundamental principle of auditing, as it ensures that the auditor's judgment is not influenced by relationships or interests that could impair their objectivity. If an auditor is not independent, they cannot provide an unbiased opinion on the financial statements, which undermines the credibility of their audit. In such cases, the auditor would typically issue a disclaimer of opinion instead of a qualified opinion or any other type of opinion. A disclaimer indicates that the auditor is unable to form an opinion on the financial statements due to a lack of independence, rather than expressing a limited opinion based on certain issues identified in the audit evidence. The other scenarios, while they may lead to a qualified opinion, do not affect the auditor's independence directly. For instance, a scope limitation may prevent completing an important procedure, but the auditor could still express a qualified opinion based on what was able to be performed. Similarly, a significant departure from GAAP or an inability to observe physical inventory does suggest problems but allows for a qualified opinion to articulate certain limitations or deviations in the financial statements while still maintaining the auditor's independence.