Explain the factors that determine the type of modified opinion to be expressed by the auditor. In this context, explain how the nature of the…

Which type of opinion is appropriate? The decision regarding which type of modified opinion is appropriate depends upon: (1) The nature of the matter giving rise to the modification, that is, whether the financial statements are materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence, may be materially misstated; and (2) The auditor's judgement about the pervasiveness of the effects or possible effects of the matter on the financial statements. The table below illustrates how the auditor's judgement about the nature of the matter giving rise to the modification, and the pervasiveness of its effects or possible effects on the financial statements, affects the type of opinion to be expressed. Nature of Matter Giving Rise to the Modification Auditor's Judgement about the Pervasiveness of the Effects or Possible Effects on the Financial Statements Material but not Pervasive Material and Pervasive Financial statements are materially misstated Qualified opinion Adverse opinion Inability to obtain sufficient appropriate audit evidence Qualified opinion Disclaimer of opinion