 can't we don't have the resources in order to audit that we possibly we can't get to it possibly we can't have another firm do it maybe there's regulatory limitations that's a scope limitation we weren't able to complete the job in that specific area and that's going to cause us if it's a significant area if it's material to the financial statements to have some kind of qualification possibly within the reporting of the financial statements not in conformity with generally accepted accounting principles happens when financial statements are materially affected by a departure from gap generally accepted accounting principles now of course the main what we're doing here is giving an opinion as to whether the financial statements are in conformity with generally accepted accounting principles if there's a significant departure from them in what from what other area then that could result in us issuing some type of qualification or some type of report other than a standard unqualified report auditor not independent happens when order has some form of prohibited relationship with the entity so into independence is going to be a key component when we're thinking about putting this this items together the audit together and it needs to be independent specifically in terms of the relationship of the auditor and the client in other words independence isn't just something typically that will be independence in the way we conduct the audit we also want to have appearance of independent because remember that the audit is is geared towards an independent third party so if someone has some relation with someone in the in the organization that's significant even if they even if they conducted the audit in an independent fashion that the appearance is not independent so that could cause some type of difference or some types of qualification independence is kind of is a big deal within the auditing process so then what would we do about it what would happen if there was a scope limitation well if there's a scope limitation we'd have a qualified opinion or some a disclaimer of opinion right if it was a scope limitation we could say hey there's just one piece that we couldn't audit and therefore we're gonna have this qualification that we couldn't audit that one piece and tell the reader that however if it's a large piece of it's very significant then we're just gonna have to say hey we couldn't we couldn't complete the audit to our satisfaction and therefore we have to issue a disclaimer opinion given the scope limitation not in conformity with generally accepted accounting principles we would have a qualified opinion or an adverse opinion so again it depends on on the degree here if there's one thing that wasn't in conformity with generally accepted accounting principles and we could say hey management recorded it this way possibly and maybe they have some reason for doing that although we believe it's a deviation from generally accepted accounting principles we may say hey this component is a deviation from generally accepted accounting principles we believe and the rest of the financial statements according to our testing is in conformity with financials accounting principles we might have something like that or if there's a if there's a significant deviation of course we can't give an opinion that the financial statements and in like that's pervasive through the through the through the financial statements we can't give an opinion that the financial statements are in accordance with generally accepted accounted principles when they are not and therefore would have to issue an adverse opinion which is basically like the worst type of opinion. Auditor not independent. If the auditor is not independent then we'd have to have a disclaimer of opinion because the auditor can't basically give an opinion if they don't have that independence factor. So here's an example just an example of how the terminology would look on the disclaimer. Remember what you want is basically to memorize the qualified audit report and then you can kind of think through what would happen in some of these other types of deviations from that. In place of an opinion section the auditor's report includes the section titles disclaimer of opinion on the financial statements followed by the name of the companies who financial statements the auditor was engaged to audit and a statement identifying each financial statement that the auditor was engaged to audit. This is often followed by a basis for disclaimer of opinion section in place of a basis for opinion section. So an example might be something like this disclaimer of opinion on the financial statements we were engaged to audit the accompanying balance sheet of the company as of the date and related statements of income and cash flows as described in the following paragraph because the company did not take physical inventory and were not able to apply other auditing procedures to satisfy ourselves as to inventory quantities and the cost of property and equipment we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements and we do not express an opinion on these financial statements. So notice we're just basically saying you know we were engaged we have this problem that happened we're not able to give an opinion on the financial statements because of it. The company did not make a count of physical inventory in the year stated in the accompanying financial statements at 28 million as of the date further evidence supporting the cost of property and equipment acquired prior to date is no longer available. The company's records do not permit the application of other auditing procedures to inventories or property plant and equipment basis for disclaimer of opinion. These financial statements are the responsibility of companies management. We are public accounting firm registered with a company accounting oversight board United States PCA OB and are required to be independent with respect to the company in accordance with the US securities laws and the applicable rules and regulations of the securities and exchange commission the PCA OB. Here's an example of a type of deviations or type of alterations of the standard unqualified report that may happen if there's a scope limitation. So now we have a qualification qualified report as opposed to unqualified again think about the unqualified report and then think about the the deviation that would happen for the qualification standard wording for the opinion paragraph to accept that a reference to the scope limitation is made example in our opinion except for the effects of such adjustments if any as might have been determined to be necessary had we been able to examine evidence regarding the foreign affiliate and earnings the financial statement present fairly in all material respects and so on and so forth. So once again we have in our opinion and then this qualification given the fact that we have a scope limitation we couldn't get to this information and therefore couldn't audit it what we did audit this is my paraphrasing of this by the way what we did audit looks like it's in conformity. We believe we have evidence to conform to back up our assumption that it isn't conformity with generally accepted accounting principles. We weren't able to get the evidence with regards to this item and then a paragraph following the opinion paragraph will describe the basis for departure from the unqualified opinion. We were unable to obtain an audited financial statement supporting the company's investments in foreign affiliates stated at 10 million at date or its equity in earnings of that affiliate of one million which is included in net income for the years then ended as described in note seven to the financial statements. So obviously we'll refer to the note. The note will give more information on this but it's significant enough for us to put it in the audit report here. We were also not able to satisfy ourselves as to the carrying value of the investments in the foreign affiliate or the equity in its earnings by other auditing procedures.