Management Determined It Was Probable That a Pending Litigation Claim

question 167

Multiple Choice

Management determined it was probable that a pending litigation claim would result in a material loss. The loss was disclosed in the footnotes to the financial statements but was not accrued in the income statement. If the auditors believe an accrual should be made, what type of report should be issued?

• A)Standard report.
• B)Unqualified opinion with an explanatory paragraph.
• C)Qualified opinion based on a circumstance-imposed scope limitation.
• D)Qualified or adverse opinion based on a departure from GAAP.

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Definitions:

Mutual Obligation

A reciprocal agreement where each party has duties or responsibilities towards the other, typically seen in contracts or social relationships.

Developing Countries

Nations with a lower standard of living, underdeveloped industrial base, and low Human Development Index relative to other countries.

Ethical Tone

The overall mood or character regarding ethics within an organization, reflecting its commitment to ethical principles in decision-making and actions.

Ethical Standards

Principles that guide behavior and practices in both personal and professional contexts, based on notions of right and wrong.