An adverse opinion is issued when the financial statements are materially misstated and the misstatements are pervasive, meaning they affect multiple areas of the financial statements or the financial statements as a whole.
The auditor’s risk assessment process involves identifying and assessing risks of material misstatement, evaluating the design and implementation of internal controls, and designing audit procedures to address the identified risks. Testing the operating effectiveness of controls that are not related to identified risks is not a part of the risk assessment process, as it does not directly contribute to addressing the assessed risks.
An auditor's inquiry with the client's attorney is primarily to gather information about any legal matters that could affect the financial statements. This includes understanding any pending litigation or claims that could impact the financial position or results of operations.
Reasonable assurance means that the auditor provides a high, but not absolute, level of assurance that the financial statements are free from material misstatement. Audits are designed to detect material misstatements rather than to provide absolute assurance of complete accuracy.
The primary purpose of testing controls is to evaluate their efficiency and effectiveness in preventing or detecting material misstatements. Testing controls helps auditors understand the control environment and design appropriate substantive procedures.
