Explanation

When an auditor encounters a scope limitation but can still issue an opinion, the appropriate type of opinion is a qualified opinion.

Understanding the Types of Audit Opinions:

1. Unqualified Opinion (Clean Opinion): Issued when the auditor concludes that the financial statements present fairly, in all material respects, in accordance with the applicable financial reporting framework.

2. Qualified Opinion: Issued when:

   • The auditor concludes that misstatements are material but not pervasive to the financial statements, OR
   • The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but concludes that the possible effects on the financial statements of undetected misstatements could be material but not pervasive.

3. Adverse Opinion: Issued when the auditor concludes that misstatements are both material and pervasive to the financial statements.

4. Disclaimer of Opinion: Issued when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive.

Why Option B is Correct:

• A scope limitation means the auditor cannot obtain sufficient appropriate audit evidence.
• If the limitation is material but not pervasive, the auditor issues a qualified opinion.
• The key distinction is that the auditor can still form an opinion, but with qualifications about the limitation.

Why Other Options are Incorrect:

• Option A (Adverse Opinion): Used when financial statements are materially misstated, not for scope limitations.
• Option C (Disclaimer of Opinion): Used when scope limitations are so severe that the auditor cannot form an opinion at all (pervasive limitations).

Key Takeaway:

The hierarchy of audit opinions based on severity:

1. Unqualified (no issues)
2. Qualified (material but not pervasive issues)
3. Adverse (material and pervasive misstatements)
4. Disclaimer (cannot form an opinion due to pervasive scope limitations)