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An auditor who is unable to form an opinion on a new client’s opening inventory balances may issue an unmodified (unqualified) opinion on the current year’s
Income statement only.
Statement of cash flows only.
Balance sheet only.
Statement of shareholders’ equity only.
C. This is correct because beginning inventory does not affect the year-end balances on the balance sheet; while both prior year and current year income are affected by a misstated prior year ending (current year beginning) inventory, the misstatements counterbalance one another and will cause no misstatement of the current year-end balance sheet.
Why is this correct? If beginning balance is wrong, then ending balance is also going to be wrong.
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