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Does a pervasive material misstatement only occur when the basis of preparation of the financial statements is incorrect?
Oh I do like Qs about audit opinions and auditor’s reports and that is a great question!
Short answer – NO although it’s an excellent reason (“grounds”) that would affect multiple balances, profit or loss, presentation and disclosures.
Another “single” matter that could give rise to an adverse opinion would be non-consollidation of a material subsidiary in group financial statements – though that’s not examinable in AA – you’ll have to wait for AAA (!)
Then, although you won’t see the cumulative impact of multiple reasons for modification being examined (even in AAA) – there could be overstatement of non-current assets due to no recognition of impairment (IAS 36), overstated inventory (not at lower NRV per IAS 2), overstatement of receivables …. understatement of liabilities/provisions …. all of which contribute to profit overstatements … and “as a whole”, the financial statements are materially misstated.
Another point that I like to make is that in the real world, the VAST majority of of audit opinion as UNmodified. Of those that ARE modified, relatively few will take the “extreme” forms of adverse or disclaimer. There is a Q Jaspar, Garnet and Ruby in the AA Study Hub Question Practice, which suggests this.
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