Audit and Assurance Practice Exam

If an auditor issues a disclaimer due to lack of independence, what must the report state?

1. The lack of independence without explanation.

2. The lack of independence with detailed reasons.

3. No mention of independence is required.

4. The report must be reissued to clarify independence.

The correct answer is: The lack of independence with detailed reasons.

When an auditor issues a disclaimer of opinion due to a lack of independence, it is crucial to provide a detailed account of the situation in the report. This is because a lack of independence significantly impacts the auditor's ability to provide an objective and impartial evaluation of the financial statements. The report must clearly state the reason for the disclaimer to ensure that users of the financial statements understand the implications of the auditor's independence and the reliability of the information presented. By including detailed reasons, the auditor communicates the nature of the independence issue, which helps stakeholders assess the appropriateness of the financial statements and understand the context in which the disclaimer was issued. This transparency builds trust and allows users to make informed decisions based on the reported financial information, knowing that the auditor's conclusions are not solely based on professional judgment but also reflect the auditor's relationship with the entity being audited.