Auditors Should Disclose the Substantive Reasons for Expressing an Adverse

question 81

Multiple Choice

Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in

• A)the Adverse Opinion Section.
• B)the Basis for Adverse Opinion Section.
• C)the Auditor's Responsibilities for the Audit of the Financial Statements Section.
• D)the footnotes to the financial statements.

---

Definitions:

M&M I

The Modigliani-Miller Theorem I, which suggests that in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by its capital structure.

Interest Tax Shield

The decrease in income tax due to the permissible deduction on interest expenses.

Capital Structure

The composition of a company's liabilities and equity, defining how it finances its overall operations and growth.

M&M Proposition I

A principle of corporate finance stating that the value of a firm is unaffected by how it is financed, in the absence of taxes, bankruptcy costs, and asymmetric information.