Management Determined It Was Probable That a Pending Litigation Claim

question 26

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 (unmodified)report.
• B)Unmodified opinion with an emphasis-of-matter 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:

Barriers To Entry

Factors that make it difficult for new firms to enter a market, such as high startup costs, complex regulations, or entrenched competitors.

Monopolistic Competition

A market structure characterized by many firms selling differentiated products, allowing for some degree of market power.

Close Substitutes

Close substitutes are products or services that can serve as nearly identical alternatives for consumers, making them likely to switch if the price or quality of one changes.

MC = MR

A condition where marginal cost equals marginal revenue, often used to determine the profit-maximizing level of output in economic theory.