When an Adverse, Qualified or Disclaimer of Opinion Is Issued

question 9

Multiple Choice

When an adverse, qualified or disclaimer of opinion is issued, ASA 705 requires that the auditor's report includes:

• A) a clear description of all the substantive reasons for the opinion.
• B) where practicable, a quantification of the possible effect on the financial report.
• C) both A and B
• D) neither A nor B

---

Definitions:

Volume Variance

The difference between the budgeted fixed overhead at 100% of normal capacity and the standard fixed overhead for the actual units produced.

Factory Overhead Cost

All of the costs of producing a product except for direct materials and direct labor.

Normal Capacity

The average level of operational output or activity that a company can sustain over a long period, considering fluctuations in demand and maintenance schedules.

Cost Variance

The difference between the actual cost and the standard or planned cost in a budget.