If financial statements are materially misstated and the misstatement is both material and pervasive, what type of opinion should be issued?

When financial statements are determined to be materially misstated and the misstatement is both material and pervasive, the appropriate course of action is to issue an adverse opinion. This type of opinion indicates that the financial statements do not present a true and fair view of the entity's financial performance and position according to the applicable financial reporting framework.

An adverse opinion is necessary when the misstatements have a significant impact on the overall reliability and trustworthiness of the financial statements, suggesting that the errors or omissions affect not just isolated areas but are fundamental to the overall financial reporting. This reflects a serious concern regarding the integrity of the financial information provided.

In this context, issuing a qualified opinion would not be suitable, as that type of opinion is reserved for situations where effects of misstatements are material but not so severe as to misrepresent the whole financial statement. A disclaimer of opinion would be applicable when the auditor is unable to obtain sufficient appropriate audit evidence to provide a basis for an opinion on the financial statements, which is not the case here. Lastly, an unmodified opinion is given when there are no material misstatements found; therefore, it would not apply in a situation where the financial statements are significantly misstated.