Audit Opinions The financial statements of Brown Corporation were issued several months ago and included an unqualified audit opinion from a major CPA firm.

Three weeks later a newspaper article indicated that, prior to the end of the fiscal year, one of the officers was arrested for stealing several pieces of office equipment. Moreover, two checks the company had received prior to the end of the year bounced and were never collected.

a. What does an unqualified audit opinion indicate?

b. Why might the audit firm have been justified in issuing an unqualified opinion even if the auditors were aware that these events had occurred?

c. If the auditors had discovered these events prior to completing their audit work and had decided they could not issue an unqualified opinion, what other types of responses might they have given?

d. What effect is the issuance of an opinion other than an unqualified opinion likely to have on external decision makers?