In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?
a. Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed.
b. The auditor is unable to apply necessary procedures concerning an investor's share of an investee's earnings recognized on the equity method.
c. There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements.
d. The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures.
Answer:A
Choice "a" is correct. Inadequate disclosure of the substantial doubt about an entity's ability to continue as a going concern is a departure from GAAP, resulting in either a qualified or adverse opinion.
Choices "d" and "b" are incorrect. Scope limitations result in either a qualified opinion or in a disclaimer of opinion, but not in an adverse opinion.
Choice "c" is incorrect. A change in accounting principle results in the use of an emphasis-of-matter paragraph following the opinion paragraph in an unmodified report, as long as the change was accounted for properly.