What is A Scope Limitation? - Qualified or Disclaim opinion

※ If the possible effects are material, the auditor expresses a qualified opinion or disclaims an opinion, depending on pervasiveness.

 

 

What constitutes a limitation on the scope of the audit.

■ The company failed to make a count of its physical inventory during the year, and the auditor was unable to apply alternative procedures to verify inventory quantities.  

- The auditor could not attend physical inventory counting or perform alternative procedures to obtain sufficient appropriate evidence. 

 

■ Management refuses to allow the auditor to have access to the company’s canceled checks and bank statements. 

- The auditor may become aware of a management-imposed scope limitation after accepting the engagement that is likely to result in a qualified opinion or a disclaimer of opinion. The auditor should request removal of the limitation. If it is not removed, the auditor should communicate with those charged with governance and determine whether alternative procedures can be performed. If the auditor cannot obtain sufficient appropriate evidence because of the limitation, (s)he should determine whether the possible effects of undetected misstatements could be material and pervasive. If they are, the auditor should disclaim an opinion or withdraw from the engagement (AU-C 705). 

 

■ The auditor is unable to obtain the audited financial statements of a consolidated investee.

- An example of circumstances resulting in a scope limitation due to the nature or timing of the work is an inability to obtain the audited financial statements of a long-term investee. 

 

■ When the auditor is unable to determine amounts associated with an employee fraud scheme, the standards suggest that a disclaimer is appropriate.

 

■ Being unable to obtain audited financial statements supporting the entity’s investment in a foreign subsidiary.

 

■ Not being able to observe the counting of physical inventories at the beginning of the year.

-When beginning inventory cannot be confirmed. 

 

■ The practitioner was not able to perform certain procedures deemed necessary.

 

■ Failure to provide representations about certain matters (fraud, noncompliance, misstatements, litigation and claims, estimates, related parties, and subsequent events) may cause the auditor to disclaim an opinion or withdraw from the engagement. 

-e.g. The chief financial officer and the chief executive officer are unwilling to sign the management representation letter.