Which scenario is given as an example of a limitation on scope that could lead to a disclaimer opinion?

Which scenario is given as an example of a limitation on scope that could lead to a disclaimer opinion?

• A. Auditor's inability to obtain external confirmations.
• B. Management's decision to change accounting method.
• C. Company books and records destroyed in fire.
• D. Discovery of fraud by management.

Answer: (C)

A scope limitation occurs when the auditor cannot obtain sufficient appropriate audit evidence to form an opinion on the financial statements. When the company’s books and records are destroyed in a fire, the auditor loses the primary source documents and cannot verify transactions, balances, or disclosures. That makes it impossible to assess the accuracy of the financial statements, and the limitation is pervasive enough to prevent issuing an opinion, so the appropriate response is a disclaimer of opinion. The other scenarios don’t fit as a clear scope limitation leading to a disclaimer. A policy change in accounting method is a management decision that requires proper disclosure and potential retrospective adjustment, not an evidence-gathering barrier. Discovery of fraud by management raises concerns about misstatements and could lead to a qualified or adverse opinion depending on materiality and pervasiveness, but it isn’t a blanket inability to obtain sufficient audit evidence. Inability to obtain external confirmations is an evidence-gathering issue as well, but it may be mitigated with alternative procedures and doesn’t automatically require a disclaimer the way total destruction of records does.

A scope limitation occurs when the auditor cannot obtain sufficient appropriate audit evidence to form an opinion on the financial statements. When the company’s books and records are destroyed in a fire, the auditor loses the primary source documents and cannot verify transactions, balances, or disclosures. That makes it impossible to assess the accuracy of the financial statements, and the limitation is pervasive enough to prevent issuing an opinion, so the appropriate response is a disclaimer of opinion.

The other scenarios don’t fit as a clear scope limitation leading to a disclaimer. A policy change in accounting method is a management decision that requires proper disclosure and potential retrospective adjustment, not an evidence-gathering barrier. Discovery of fraud by management raises concerns about misstatements and could lead to a qualified or adverse opinion depending on materiality and pervasiveness, but it isn’t a blanket inability to obtain sufficient audit evidence. Inability to obtain external confirmations is an evidence-gathering issue as well, but it may be mitigated with alternative procedures and doesn’t automatically require a disclaimer the way total destruction of records does.