When the Proper Disclosure in the Financial Statements of Material

question 4

Multiple Choice

When the proper disclosure in the financial statements of material contingencies is through footnotes, the footnote should describe the nature of the contingency to the extent it is known and the:

• A) auditor's opinion as to the expected outcome.
• B) steps the client has taken to ensure that it doesn't recur.
• C) opinion of legal advisers or management as to the expected outcome.
• D) opinion of an outside independent party, such as an appraiser, as to the expected outcome.

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Definitions:

Externalities

Unintended financial outcomes affecting individuals not directly engaged, potentially leading to good or bad impacts.

External Costs

Costs that are not borne by the producer or consumer of a good or service, but by society or the environment.

MSC (Marginal Social Cost)

The total cost to society of producing an additional unit of a good or service, including both the private costs and any external costs.

Efficient Level

Refers to the point at which a system, process, or economy operates at maximum productivity with minimal waste and expense.