Audit and Assurance Practice Exam 2026 – Complete Prep Resource

An adverse opinion in auditing is issued when an auditor concludes that the financial statements are not presented fairly and do not accurately reflect the company’s financial position or results of operations according to the applicable financial reporting framework. This indicates that there are material misstatements within the financial statements that are significant enough to mislead users who rely on them.

When an auditor issues an adverse opinion, it signals to stakeholders that the financial statements do not provide a true and fair view of the entity's financial situation, which is crucial for investment, lending, and regulatory purposes. Such an opinion is a strong negative signal about the reliability of the financial statements and often suggests that significant issues have been identified during the audit process.

The other choices mention positive aspects of financial statements, suggesting that they are free from misstatements, high quality, or compliant with laws, which are not consistent with the nature of an adverse opinion. An adverse opinion explicitly contradicts these notions.